Firm Settles FINRA Charges for Failing to Supervise Custodial Accounts

A firm settled FINRA charges for failing to track and restrict Uniform Transfers to Minors Act ("UTMA") custodial accounts once beneficiaries reached the age of majority.  

According to the AWC, the firm permitted customers to open UTMA accounts, but failed to track or monitor changes in custodial authority when minor beneficiaries reached the age of majority or other applicable termination date. FINRA found that during the relevant period, "beneficiaries in 13,642 of the firm’s UTMA accounts reached the relevant age," however, "8,382 of those accounts remained open and had not been re-titled or transferred to the beneficiary." FINRA found the firm failed to enforce supervisory systems and written supervisory procedures ("WSPs").

FINRA further found that this supervisory lapse allowed custodians to effect transactions or withdraw, journal, or transfer funds from UTMA accounts after the termination date, without verifying that they had continuing authority from the beneficiary. Although the firm’s WSPs required custodians to transfer assets once a beneficiary reached the applicable age, the firm did not implement systems reasonably designed to ensure compliance with that requirement or to confirm the custodian’s continued authority to act on the beneficiary’s behalf.

FINRA concluded that the firm violated FINRA Rule 3110 ("Supervision") and FINRA Rule 2010 ("Standards of Commercial Honor and Principles of Trade"). 

The firm agreed to (i) a censure and (ii) a $200,000 fine.