FINRA Fines Firm for Reg BI Violations
Commentary by Jeff Ziesman
A firm settled FINRA charges for excessive trading in customer accounts, unfair commissions and related supervisory violations.
According to the AWC, the firm charged commissions ranging from over 5% to 77% of transaction values. FINRA found that the firm charged $19,200 in total commissions on 255 transactions; $3,155.37 of the amount was deemed excessive. In violation of its Care Obligation under Reg BI, FINRA found that the firm failed to establish a system to prevent the excessive trading, which resulted in high turnover rates and high cost-to-equity ratios in certain accounts.
FINRA found that the firm failed to implement adequate supervisory controls on the suitability of recommendations involving non-traditional and volatility-linked ETPs. Further, FINRA found that the broker-dealer lacked adequate written supervisory procedures to ensure guidance for determining fair commissions or documenting supervisory reviews.
FINRA determined that the firm violated FINRA Rules 2121 ("Fair Prices and Commissions"), 3110 ("Supervision") and 2010 ("Standards of Commercial Honor and Principles of Trade") and Exchange Act Rule 15l-1 ("Regulation Best Interest").
To resolve the charges, the broker-dealer consented to (i) a censure and (ii) restitution of $48,435.76 plus interest to affected customers.
Commentary
Regulators continue to evaluate sales practices and other sales behavior for Regulation BI conformity. In this case, the firm did not have adequate systems to identify excessive trading, and did not account for the annual turnover or cost-to-equity ratios for activity in certain accounts. Nor did not the firm have appropriate systems in place to monitor the holding periods for certain exchange-traded products. Both of these areas have been under significant regulatory scrutiny for over a decade.
FINRA recited that no fine was imposed, given that the firm had filed a Form BDW (Uniform Request for Broker Dealer Withdrawal), its agreement to pay restitution to customers, and its apparent lack of financial resources. The firm did pay over $48,000 to impacted customers.