FINRA Sanctions Firm for Supervisory Control and Inspection Failures

A firm settled FINRA charges for failing to (i) review associated persons’ trading activity, (ii) conduct required branch inspections, and (iii) obtain annual CEO supervisory certifications. 

According to the AWC, the firm failed to review securities transactions for insider trading, manipulative trading, or deceptive trading. FINRA stated that the firm instead outsourced this function to an affiliate whose review was limited to potential insider trading and did not address other forms of misconduct, including trading ahead of customers. FINRA found that the firm had no policies or procedures to supervise the affiliate’s reviews and did not conduct any oversight of the affiliate’s monitoring of associated persons’ brokerage accounts.

FINRA found that the firm failed to prepare written reports of inspections it conducted of six non-supervisory branch offices. FINRA stated that for two of those branches the firm did not retain any records evidencing that inspections were conducted. FINRA noted that for the remaining four branches, the firm did not maintain documentation evidencing that inspections included testing and verification of all applicable areas of its policies and procedures. FINRA highlighted that the firm also failed to conduct an inspection of its office of supervisory jurisdiction.

FINRA further found that the firm failed to conduct annual supervisory control system testing and did not obtain CEO certifications regarding the adequacy of its compliance and supervisory control processes.

FINRA determined that the firm violated FINRA Rules 2010 ("Standards of Commercial Honor and Principles of Trade"), 3110 ("Supervision"), 3120 ("Supervisory Control System") and 3130 ("Annual Certification of Compliance and Supervisory Processes").

The firm agreed to (i) a censure and (ii) a $75,000 fine.