LPL Financial LLC Fined $5.5 Million by FINRA for Supervision Lapses

LPL Financial LLC, a leading financial services firm, is facing a hefty fine of $5.5 million from the Financial Industry Regulatory Authority (FINRA) due to multiple supervision lapses spanning several years. The sanctions come in response to a range of violations related to direct business transactions, inadequate record-keeping, inaccurate customer communications, and shortcomings in supervisory systems.

According to FINRA's press release, LPL Financial failed to reasonably supervise transactions conducted by its registered representatives directly with product sponsors on behalf of the firm's customers between January 2012 and August 2019. This failure is deemed a violation of NASD Rule 3010 and FINRA Rules 3110 and 2010. The firm neglected to ensure that approximately 830,000 such transactions were reported on the trade blotter, a tool used to identify potential sales practice violations.

Furthermore, LPL Financial did not generate exception reports from these transactions to identify potential sales practice violations, including potentially unsuitable transactions. In the case of an additional two million direct business transactions, the company failed to collect essential customer information for making suitability determinations, violating Section 17(a) of the Securities Exchange Act of 1934, Exchange Act Rule 17a-3, NASD Rule 3010, and FINRA Rules 3110, 4511, and 2010.

In another set of violations spanning from February 2016 through June 2020, LPL Financial sent approximately 11,300 switch letters to customers containing inaccurate information about the charges incurred by switching from one security to another. This breach is a direct violation of FINRA Rule 2010. The firm also failed to reasonably supervise the suitability of certain transactions due to inaccuracies in its supervisory review tool regarding the charges customers paid in connection with certain switches, violating FINRA Rules 3110 and 2010.

The regulatory troubles for LPL Financial extended to the period between May 2017 and November 2022, during which the firm violated FINRA Rules 3110 and 2010 and Rule 15l-1 of the Securities Exchange Act of 1934. The company failed to establish, maintain, and enforce a supervisory system, including written procedures, reasonably designed to ensure that recommendations of publicly traded securities of business development companies (Listed BDCs) complied with FINRA Rule 2111 and Regulation Best Interest's Care Obligation.

These facts and violative conduct have led to the significant financial penalty imposed by FINRA. The regulatory body emphasizes the importance of proper supervision, record-keeping, and accuracy in customer communications to maintain the integrity of the financial markets and protect investors.

LPL Financial LLC has not yet publicly commented on the matter. Investors and industry analysts will be closely monitoring the company's response and any subsequent actions to address these serious regulatory concerns.

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