FINRA Fines Firm for Supervisory Failures Over Outside Brokerage Accounts

A broker-dealer settled FINRA charges for failing to establish adequate supervisory procedures to monitor its registered representatives' outside brokerage accounts.

According to the AWC, the firm required that representatives obtain approval before opening outside brokerage accounts with other member firms. FINRA said it was firm policy to obtain and review duplicate statements for all disclosed outside brokerage accounts and to provide annual certifications as to those accounts. FINRA found that the firm lacked a process to confirm receipt of certifications or to verify the accuracy of disclosures. FINRA also found that representatives either failed to submit certifications or provided incomplete information. FINRA found that during the relevant period, "more than half of the firm's associated persons were maintaining one or more outside brokerage accounts that had not been disclosed to the firm."

FINRA also found that the firm failed to ensure it received and reviewed all required duplicate account statements. FINRA highlighted that the firm maintained a list of disclosed accounts, but did not reconcile it with statements received, and, further, that the firm lacked procedures to follow up on missing statements. FINRA said the firm's manual review of account statements, conducted by a single supervisor, was deemed unreasonable due to the volume of accounts and lack of a systematic approach to identify suspicious patterns or potential violations, such as insider trading.

FINRA determined that the broker-dealer violated FINRA Rules 3110 ("Supervision") and 2010 ("Standards of Commercial Honor and Principles of Trade").

To settle the charges, the firm agreed to (i) a censure, (ii) a $100,000 fine and (iii) an undertaking to implement a supervisory system and certify its remediation efforts.