FINRA Fines Firm for Customer Protection Rule Violations and Supervisory Failures

FINRA censured and fined Pershing LLC for violating the Customer Protection Rule and for related supervisory failures.

The SEC Customer Protection Rule requires that a broker-dealer that maintains custody of customer securities and cash must comply with two requirements: (i) to obtain and maintain physical possession or control over customers' fully paid and excess margin securities and (ii) to maintain in an account at a bank a reserve of cash or qualified securities that is at least equal in value to the net cash owed to customers by the broker-dealer.

According to the complaint, FINRA found that Pershing failed to maintain adequate reserves to meet its cash-reserve deposit requirements. Pershing also failed to promptly obtain and later maintain physical possession or control of certain customers' fully paid and excess margin securities. Additionally, according to FINRA, Pershing's supervisory systems and procedures were inadequate and the firm failed to implement a system to review and approve procedural changes with material impact to the requirements of the Customer Protection Rule.