FINRA Fines Pershing LLC $1.4 Million for Inaccurate Reporting

Pershing LLC, a major clearing firm, has agreed to pay a $1.4 million fine to the Financial Industry Regulatory Authority (FINRA) for distributing inaccurate interest rate information on variable rate securities over a 12-year period. The firm, headquartered in Jersey City, New Jersey, settled the matter without admitting or denying the findings.

According to FINRA, from January 2010 through December 2022, Pershing distributed more than one million account statements and trade confirmations containing incorrect interest rate information for certain variable rate securities. The inaccuracies also appeared on the firm's online access portals used by customers and registered representatives of introducing firms that rely on Pershing's clearing services.

The regulatory body cited two main causes for the misinformation:

1. A third-party vendor's failure to provide updated interest rate information for at least 13,000 foreign variable rate securities between January 2016 and September 2022.
2. A coding issue in Pershing's security master system that prevented the listing of zero percent interest rates for certain variable rate domestic bonds, affecting tens of thousands of securities.

FINRA found that Pershing violated multiple rules, including those related to maintaining accurate books and records, and providing accurate customer account statements. The regulator also determined that Pershing failed to establish and maintain a reasonable supervisory system to review the accuracy of the interest rate information it disseminated.

Despite receiving dozens of customer notifications about inaccurate interest rate information, Pershing reportedly failed to investigate the root causes or determine if the issues were more widespread.

In addition to the fine, Pershing has agreed to a censure. The firm has since taken corrective actions, including revising its written supervisory procedures, implementing coding changes, and enhancing its processes for confirming the accuracy of third-party vendor-sourced information.

This case highlights the importance of maintaining accurate financial records and the potential consequences of relying on third-party data without adequate verification processes. It also underscores FINRA's ongoing efforts to ensure that financial firms provide accurate information to their clients and maintain proper supervisory systems.

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