FINRA Fines Firm for Inaccurate Fixed-Income Confirmations
A firm settled FINRA charges for inaccurate "fixed-income confirmations" and related supervisory deficiencies.
According to the AWC, the firm sent approximately 21,000 customer confirmations for debt-securities transactions containing inaccurate mark-up and mark-down information. FINRA stated that about 1,400 confirmations miscalculated percentages by comparing mark-ups to the "security’s par (face) value instead of the actual transaction price." FINRA determined that approximately 19,500 confirmations reflected incorrect amounts and percentages because the firm’s order management system failed to use its contemporaneous cost. FINRA also noted that 12 confirmations omitted information in the mark-up/mark-down fields when no charge was applied. FINRA concluded that these deficiencies "affected roughly 44 percent of the firm’s fixed-income customer confirmations" during the relevant period.
FINRA found that the firm failed to maintain a supervisory system designed to ensure compliance with customer confirmation rules. FINRA determined that the firm relied on limited monthly reviews that excluded fixed-income transactions and rarely identified errors. FINRA noted that, even after the firm revised its procedures following inquiries, the updated process still failed to detect inaccurate fixed-income confirmations. FINRA concluded that the firm only corrected these deficiencies after additional revisions to its supervisory procedures. FINRA also found that the firm failed to reasonably investigate customer complaints regarding inaccurate mark-up and mark-down disclosures and took no corrective action until it addressed its order management system errors.
FINRA determined that the firm violated SEA Sections 17(a) ("Records and Reports"), SEA Rule 17a-3 ("Records to be made by certain exchange members, brokers and dealers"), and FINRA Rules 2010 ("Standards of Commercial Honor and Principles of Trade"), 2232 ("Customer Confirmations"), 3110 ("Supervision"), and 4511 ("General Requirements").
To settle the matter, the firm agreed to (i) a censure and (ii) a $100,000 fine.