Firm Fined for Failing to Disclose Disciplinary History on Form CRS
Commentary by Jeff Ziesman
A firm settled FINRA charges for failing to disclose the disciplinary history of an associated person on its customer relationship summary ("Form CRS").
According to the AWC, the firm inaccurately responded "No" to the Form CRS question regarding legal or disciplinary history for financial professionals, despite the fact that such information about one of its associated persons was available through FINRA's Central Registration Depository and BrokerCheck. FINRA said that the disciplinary information included use of a "non-firm-approved communications platform to communicate with a customer regarding firm business." FINRA found that the firm failed to amend Form CRS during the relevant period to reflect this history.
As a result, FINRA found the firm violated Exchange Act Section 17(a)(1) ("Records and Reports"), Exchange Act Rule 17a-14 ("Form CRS, for preparation, filing and delivery of Form CRS") and FINRA Rule 2010 ("Standards of Commercial Honor and Principles of Trade").
To settle the charges, the firm agreed to (i) a censure and (ii) pay a $20,000 fine. FINRA made clear that the willful violation of these rules makes the firm "subject to a statutory disqualification with respect to membership," under Article III, Section 4 of FINRA's By-Laws.
Commentary
Firms were required to provide customers with a Customer Relationship Summary ("Form CRS") beginning June 30, 2020. Implicit in this requirement was that the Form CRS, which identifies basic information about a Firm's services and background, was accurate. Among the items included on a Form CRS are a Firm's and its representatives' disciplinary history.
Here, the Firm did not disclose for several years on its Form CRS that one of its associated persons had a disciplinary history regarding using a non-firm-approved communications platform to communicate with a customer regarding firm business. This seems, on the surface, and in isolation, relatively insignificant. Nevertheless, FINRA charged this matter as a willful violation of Section 17(a)(1) of the Securities Exchange Act of 1934 and Rule 17a-14. The willful finding makes the Firm subject to a statutory disqualification, and it will be required to go through the FINRA SD Membership process in order to remain in business.
All in all, this seems like a pretty strong potential sanction considering the underlying facts (at least as recited in the AWC).