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FINRA charges member firm with Regulation Best Interest violations
On August 5, FINRA accepted a Letter of Acceptance, Waiver, and Consent (AWC) against a member firm for three alleged violations related to the failure to maintain policies and procedures and supervisory systems in compliance with federal law. First, the firm allegedly failed to establish and maintain written policies and procedures in compliance with Regulation Best Interest (Reg BI) since June 2020. According to FINRA, this lapse led to violations of the Securities Exchange Act Rule 15l-1(a)(1) and breaches of FINRA Rules 3110 and 2010. The firm also allegedly neglected its obligations under Exchange Act Rule 17a-14, which mandates the preparation of a customer relationship summary (Form CRS). From June 2020 to July 2023, FINRA claims the firm did not have a proper supervisory system tailored to ensure compliance with its Form CRS obligations. This oversight resulted in additional violations of FINRA Rules 3110 and 2010.
Last, the firm allegedly failed to file necessary documents in a timely manner for three private placement offerings sold to retail investors between April 2020 and March 2022. These filings were allegedly made almost two years late, and only after specific requests from the regulatory authority. The firm’s supervisory system was also lacking according to FINRA, as it designated an individual no longer associated with the firm to oversee these filings, violating FINRA Rules 3110 and 2010. The firm consented to a censure and a $60,000 fine as part of the settlement. Additionally, a senior management member must certify within 60 days that the firm has remediated the identified issues and implemented compliant policies and procedures.
FINRA accepts AWC regarding Regulation Best Interest/Form CRS
On July 19, FINRA accepted a Letter of Acceptance, Waiver, and Consent (AWC) from a member firm to resolve alleged Regulation Best Interest (Reg BI) violations. According to the AWC, from June 2020 to March 2023, the member firm allegedly failed to implement written policies and procedures for compliance with Reg BI, which generally requires a broker-dealer to act in the best interest of a retail customer when recommending a securities transaction or an investment strategy involving securities without placing the financial or other interest of the broker, dealer, or associated person ahead of the interest of the retail customer. FINRA alleged that the firm’s written supervisory procedures lacked specific guidelines for Reg BI compliance, and it inadequately addressed Reg BI. As a result, the firm was alleged to have willfully breached Exchange Act Rule 15l-1(a)(1) and Municipal Securities Rulemaking Board (MSRB) Rule G-27, along with FINRA Rules 3110 and 2010. Additionally, the firm allegedly had inadequate written supervisory procedures, which failed to comply with Form CRS requirements issued by the SEC.
Respondent agreed to a censure and a $35,000 fine, $17,500 of which pertained to the violations of MSRB Rule G-27.