FINRA's Intensified Crackdown on Compliance Failures: A Multi-Firm Case Study

Recent enforcement actions by the Financial Industry Regulatory Authority (FINRA) have spotlighted significant compliance failures at several major financial firms. These cases underscore FINRA’s commitment to ensuring adherence to regulatory standards, particularly in areas such as supervisory systems, financial reporting, and investor protection. Here, we examine three distinct cases involving UBS, Citigroup, Bank of America, and Barclays Capital Inc., which collectively paint a picture of the ongoing challenges firms face in meeting compliance expectations.

UBS Financial Services Fined $1.1 Million for Trade Confirmation Failures

UBS Financial Services Inc. (UBS FSI) has agreed to pay a $1.1 million fine to settle allegations by FINRA that it violated trade confirmation rules under the Securities Exchange Act and FINRA regulations. Over a decade, UBS FSI sent more than 330 million inaccurate trade confirmations to customers, failing to disclose whether transaction prices were average or single execution prices. Despite a 2014 FINRA notification highlighting deficiencies, UBS FSI took until late 2024 to fully remediate the issue.

FINRA also found that UBS FSI lacked adequate supervisory systems and procedures to ensure compliance with trade confirmation requirements, compounding the violations. In addition to the fine, UBS FSI received a censure but neither admitted nor denied the findings as part of a settlement agreement.

Citigroup Fined $100,000 for Unqualified Municipal Securities Research Activities

Citigroup Global Markets Inc. (CGMI) settled allegations of rule violations through a Letter of Acceptance, Waiver, and Consent (AWC). Without admitting or denying the findings, CGMI agreed to FINRA’s sanctions regarding its violations of MSRB Rules G-2 and G-3.

From April 2015 to June 2023, CGMI allowed three unqualified associated persons to perform activities requiring municipal securities representative qualifications. These individuals contributed to 470 municipal securities research reports, despite not passing the required Series 52 exam or meeting alternative qualification criteria. One individual authored four additional reports independently.

CGMI self-reported the issue in June 2023 after a new supervisor identified the oversight. Following this discovery, the firm conducted a review of its licensing practices, suspended municipal research publication, and ensured the entire municipal research team completed the Series 52 exam by August 2023.

As part of the settlement, CGMI consented to:

• A censure
• A $100,000 fine

The firm also waived any rights to claim inability to pay the fine. The sanctions will become effective upon a date set by FINRA.

Barclays Capital Settles FINRA Violations for $1M Fine

Barclays Capital Inc. has agreed to a settlement with FINRA, addressing violations that occurred between January 2020 and April 2021. The firm failed to establish and maintain a supervisory system, including written procedures, to ensure compliance with net capital requirements under the Securities Exchange Act of 1934. Specifically, Barclays misclassified firm commitment offerings as best efforts offerings, leading to inaccurate net capital computations and overstating its net capital in 16 FOCUS reports. This miscalculation caused net capital figures to be overstated by amounts ranging from approximately $44 million to $949 million, though Barclays maintained sufficient excess net capital to conduct its business.

Barclays’ failure to comply with these requirements violated several FINRA rules, including Rules 3110(a), (b), and 2010, as well as Exchange Act Rules 17a-3 and 17a-5, which mandate accurate books, records, and financial reporting. The firm’s failure to adhere to these regulations was deemed a breach of its obligation to uphold high standards of commercial honor and fairness in its business practices.

As part of the settlement, Barclays has agreed to a censure and a monetary fine of $1 million. The firm has also updated its procedures to accurately identify firm commitment offerings and apply the necessary capital charges, in line with regulatory requirements. The settlement ensures that FINRA will not take future actions based on the same set of facts, and Barclays has committed to paying the fine upon FINRA’s acceptance of the settlement.

BofA Securities Settles TRACE Reporting Violations with $250K Fine

BofA Securities, Inc. has reached a settlement with FINRA over a series of violations related to its transaction reporting to the Trade Reporting and Compliance Engine (TRACE). From February 2018 to June 2023, BofA Securities failed to meet reporting requirements, including submitting late reports and failing to include required modifiers on thousands of transactions in TRACE-eligible securities.

Between October 2021 and June 2023, the firm failed to timely report approximately 5,200 transactions, including 155 agency debt transactions, 2,095 securitized product transactions, and 2,945 corporate debt transactions. Additionally, BofA Securities inaccurately reported about 57,000 transactions from February 2018 to June 2022 without the necessary .B modifier, which is required for certain U.S. Treasury securities transactions tied to futures contracts.

The violations were attributed to BofA's failure to establish a supervisory system capable of ensuring compliance with TRACE reporting obligations, leaving the firm unable to detect and address these reporting issues. The firm did take remedial actions in 2023, including upgrading its internal reporting system and implementing new review procedures.

As part of the settlement, BofA Securities has agreed to pay a $250,000 fine and accept a censure. The firm has waived its right to contest the sanctions and has committed to making the payment as specified in the agreement. This settlement resolves all future actions by FINRA based on the same findings.

FINRA's recent actions reflect an increasingly stringent approach to regulating financial institutions. These actions serve as a strong signal to the industry that compliance with regulatory requirements is non-negotiable and that firms must take proactive steps to establish robust internal controls. The growing penalties and scrutiny demonstrate that FINRA is focused on strengthening oversight, safeguarding market fairness, and fostering greater accountability across the financial sector.

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