FINRA Fines Firm for Supervisory Failures Related to Consolidated Reports

A firm settled FINRA charges for supervisory deficiencies concerning the use and dissemination of consolidated reports. FINRA stated that consolidated reports present a summary of a customer's financial assets, including those held outside the firm.

According to the AWC, the firm allowed its registered representatives to "provide consolidated reports to customers" but failed to specify in its written supervisory procedures ("WSPs") where such reports should be maintained. FINRA found that two firm representatives manually created and distributed "at least 117 consolidated reports," but did not retain 91 of them. FINRA also stated that the firm was unable to determine how many reports had been provided to customers.

FINRA highlighted that the firm's WSPs required monthly documentation of supervisory review for consolidated reports but provided no guidance on "when or how this review was to be conducted."

FINRA found that for consolidated reports containing manually-entered assets, the firm's WSPs stated that "sources of data ... and methods used in asset valuation must be available for supervisory review," but offered no guidance on how such review should be conducted. FINRA stated that the firm did not conduct any supervisory review of consolidated reports until after FINRA notified it of an upcoming examination and the firm was ultimately unable to assess the accuracy of the reports due to missing underlying data.

FINRA also emphasized that despite receiving a warning regarding "its supervision of consolidated reports in 2019" the firm did not undertake remedial measures until 2022.

FINRA determined that the firm violated Rules 2010 ("Standards of Commercial Honor and Principles of Trade"), 3110 ("Supervision") and 4511 ("General Requirements"); and Exchange Act Section 17(a) ("Records and Reports") and Rule 17a-4 ("Records to be preserved by certain exchange members, brokers and dealers").

To settle the charges, the firm agreed to (i) a censure and (ii) a $65,000 fine.