Broker-Dealer Fined for Reg BI Violations

A broker-dealer settled FINRA charges for Regulation Best Interest ("Reg BI") violations, inaccurately reporting net capital and failing to conduct required anti-money laundering testing.

According to the AWC, the broker-dealer's supervisory system and written procedures did not address: (i) the heightened risks associated with the recommendation and long-term holding of non-traditional Exchange Traded Products ("ETPs") that reset daily; (ii) appropriate supervisory controls to ensure compliance with Reg BI's Care Obligation; (iii) the use of alerts, exception reports, or approval processes to monitor recommendations; and (iv) training for registered representatives regarding these products. 

FINRA also found that the broker-dealer overstated net capital in its books, records and in ten Financial and Operational Combined Uniform Single ("FOCUS") reports. FINRA said the firm conducted a securities business while net capital deficient over a five-day period.

FINRA also found that the broker-dealer failed to conduct independent testing of its AML compliance program for four consecutive years.

As a result, FINRA determined that the broker-dealer violated Exchange Act Rules 15l-1(a)(1) ("Regulation Best Interest"), 17a-3 ("Records to be made by certain exchange members, brokers and dealers"), 17a-5 ("Reports to be made by certain brokers and dealers"), 15c3-1 ("Net capital requirements for brokers or dealers"); and FINRA Rules 3110 ("Supervision"), 2010 ("Standards of Commercial Honor and Principles of Trade"), 4511 ("General Requirements"), 4110(b)(1) ("Capital Compliance") and 3310(c) ("Anti-Money Laundering Compliance").

To settle the charges, the broker-dealer agreed to (i) a censure and (ii) pay a $55,000 fine.