FINRA Imposes Over $2.47 Million in Penalties to Strengthen Compliance Standards

The Financial Industry Regulatory Authority (FINRA) has levied over $2.47 million in penalties against four firms—Cambridge International Securities, Merrill Lynch, Oak Ridge Financial Services Group, and First Southern. These enforcement actions underscore the heightened scrutiny FINRA is applying to firms that neglect their supervisory responsibilities, exposing clients to potential financial harm through a range of infractions, including inadequate supervisory systems, improper email usage, and unfair pricing practices.

Merrill Lynch Faces $2 Million Fine for Systemic Supervision Failures: In the most significant action, Merrill Lynch has been fined $2 million for significant supervisory deficiencies related to its over-the-counter (OTC) equity transactions, making this their second fine in the past week. FINRA's investigation revealed that the firm’s supervisory framework lacked effective controls, resulting in a failure to detect regulatory violations in trade executions over an extended period. This lax oversight not only undermined market integrity but also potentially harmed customers, showcasing a pattern of widespread supervisory failures that led to substantial financial risks for the firm and its clients.

Oak Ridge Financial Services Group Hit with $270,000 Fine for Pricing Violations: The Oak Ridge Financial Services Group, headquartered in Minnesota, was fined $270,000, in addition to a restitution order of $68,857.69 plus interest, for engaging in unfair pricing practices in corporate bond transactions. Between April 2020 and January 2024, the firm executed 116 bond transactions at prices deemed unfair, employing flawed pricing methodologies that resulted in significant overcharges and underpayments for clients, totaling over $50,000. Furthermore, Oak Ridge's supervisory procedures were found to be inadequate, allowing representatives excessive discretion in setting bond prices without sufficient oversight. The firm has since agreed to a censure, the monetary sanctions, and has taken steps to revise its written supervisory procedures to enhance compliance with fair pricing rules.

Cambridge International Securities Fined $200,000 for Multiple Infractions: Westport, Connecticut-based Cambridge International Securities, LLC, was fined $200,000 for failing to adhere to proper supervisory practices, including permitting an unregistered foreign associate to conduct securities activities. The firm also neglected to retain crucial business communications conducted via personal email accounts, violating Section 17(a) of the Securities Exchange Act and various FINRA regulations. These lapses, which occurred between September 2018 and July 2023, highlight Cambridge's inability to maintain necessary controls and oversight, thereby exposing both the firm and its clients to considerable risks.

These recent enforcement actions by FINRA signal a resolute commitment to enforcing rigorous supervisory standards and ensuring compliance across the financial industry. The penalties imposed on Merrill Lynch for systemic supervisory failures, Oak Ridge Financial's pricing violations, and the infractions by Cambridge collectively underscore the critical need for firms to prioritize robust compliance frameworks.

As FINRA intensifies its scrutiny, firms that fail to address their compliance shortcomings may face not only financial penalties but also reputational damage that could have lasting effects on their operations. It is imperative for financial institutions to learn from these actions and fortify their compliance efforts to safeguard their clients and maintain market integrity.

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