FINRA Fines Firm for Supervisory Failures Regarding Variable Annuity Exchanges

A firm settled FINRA charges for failing to monitor rates of variable annuity exchanges.

FINRA found that that the firm's supervisory system "did not require [it] to assess its representatives’ rates of [deferred variable annuity] exchanges." FINRA found that the firm instead relied on "transaction-by-transaction supervisory approvals," as well as on a "data-visualization dashboard" that was not addressed in the firm’s WSPs and which the firm's regional supervisors used "on an ad-hoc basis" to calculate exchange rates. FINRA also determined that the firm’s supervisory system did not require supervisors to monitor representatives whose exchange rates raised concerns about potential violations of FINRA rules or federal securities laws "despite several representatives having such rates of exchanges" that raised such questions. FINRA stated that the firm failed to provide supervisors with guidance to evaluate whether representatives' exchange rates warranted further review or to "otherwise assess representatives’ aggregate exchange activity."

FINRA charged the firm with violations of FINRA Rules 2010 ("Standards of Commercial Honor and Principles of Trade"), 2330 ("Members' Responsibilities Regarding Deferred Variable Annuities") and 3110 ("Supervision"). 

To settle the charges, the firm agreed to (i) a censure, (ii) pay a $200,000 fine, and (iii) provide written certification by a member of the firm's senior management who is a registered principal that a compliant supervisory framework is now in place.