Firm Settles FINRA Charges for Delays in UIT Transfers

A firm settled FINRA charges for failing to timely transfer Unit Investment Trusts ("UITs") through the Automated Customer Account Transfer Service ("ACATS").

According to the AWC, the firm failed to complete the transfer of "over 5,600 [UITs] through the Automated Customer Account Transfer Service ('ACATS')" within the required timeframe. FINRA explained that ACATS is used to "transfer assets or accounts from one broker-dealer to another ... [to let] customers avoid the need to liquidate their assets at one broker-dealer (the carrying member) and repurchase them at another (the receiving member), an approach that can have negative tax and other consequences for the customer."  

FINRA found that the firm failed to transfer "approximately 4,000 of those UITs in kind, as customers had instructed," instead providing redemption proceeds. FINRA said that a coding error in the firm’s transfer-of-assets system blocked UIT transfers with pending redemptions, delaying transfers by an average of 19 business days and sometimes for more than 100 business days.

FINRA also found that the firm failed to "establish, maintain, and enforce a supervisory system" to ensure compliance with transfer requirements. FINRA said the firm lacked written supervisory procedures addressing UIT transfers and did not implement a monitoring system to track whether transfers were completed within the required three-business-day timeframe.

FINRA determined that the firm violated FINRA Rules 11870(e) ("Customer Account Transfer Contracts"), 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 certify that it implemented a supervisory system "reasonably designed to ensure compliance with FINRA Rule 11870."