Recent FINRA Enforcement Actions Highlight Compliance Failures Across the Financial Sector

The Financial Industry Regulatory Authority (FINRA) has intensified its enforcement efforts by bringing actions against four prominent firms, underscoring significant failures in compliance, supervision, and disclosure. These actions reflect FINRA's ongoing commitment to holding firms accountable for regulatory noncompliance, particularly regarding investor protection and financial transparency.

Park Avenue Securities LLC: Mutual Fund Sales Violations and Supervision Failures

Park Avenue Securities LLC (PAS) faced scrutiny over a series of compliance failures relating to mutual fund share class recommendations for retirement plan customers from January 2019 to July 2021. FINRA charged PAS with not establishing or enforcing an adequate supervisory system, resulting in 355 retirement plan customers purchasing Class A or C shares instead of more cost-effective Class R shares. This misstep led to customers incurring an additional $91,344.52 in fees, which PAS has since refunded.

In settling the allegations, PAS submitted a Letter of Acceptance, Waiver, and Consent (AWC) under FINRA Rule 9216, which stipulates that FINRA will not pursue further actions based on the same findings. The AWC also revealed that PAS had previously settled a 2019 enforcement action, where it consented to findings of disadvantaging retirement plan and charitable organization customers. The firm agreed to a censure and a $125,000 fine, while also updating its supervisory systems to address the highlighted compliance gaps.

Merrill Lynch and BofA Securities: Violations in Form U4 Filings

In a related action, Merrill Lynch, Pierce, Fenner & Smith Incorporated and BofA Securities, Inc. submitted an AWC to propose a settlement for their violations involving the timely filing of amendments to their registered representatives' Uniform Applications for Securities Industry Registration (Forms U4). Both firms failed to update their representatives' outside business activities and business addresses during a critical six-month period from July to December 2022.

Specifically, Merrill Lynch neglected to file approximately 1,800 amendments to update outside business activities and around 2,800 amendments for business addresses. Meanwhile, BofA Securities failed to file around 300 amendments for outside business activities and 500 for business addresses during the same timeframe. These lapses violated Article V, Section 2(c) of FINRA’s By-Laws and several other FINRA Rules.

Following the firms' self-disclosure of the misconduct, FINRA acknowledged their prompt actions to remedy the situation, including filing the overdue amendments and enhancing their supervisory systems to ensure timely filings in the future. The AWC stipulated fines of $215,000 for Merrill Lynch and $60,000 for BofA Securities, along with a censure for both firms.

Independent Financial Group, LLC: Failures in Supervisory Systems

Independent Financial Group, LLC (IFG) has also come under FINRA's scrutiny for failures in its supervisory systems and compliance processes. FINRA found that IFG failed to establish a system designed to ensure adherence to regulatory requirements, particularly concerning its registered representatives' activities. This oversight resulted in inadequate monitoring of the outside business activities of its agents, leading to multiple compliance violations. In light of the findings, IFG accepted a settlement agreement that resulted in a censure and a fine of $125,000.

As part of the enforcement action, IFG was charged with failing to maintain adequate written supervisory procedures (WSPs) that align with FINRA regulations. The firm has since been required to address these shortcomings and implement corrective measures to enhance its supervisory framework. The specifics of any financial penalties or settlements are currently under review.

These enforcement actions serve as a stark reminder of the importance of compliance, supervision, and disclosure in the financial industry. FINRA’s commitment to enforcing regulatory standards is critical for maintaining investor trust and ensuring the integrity of financial markets. As firms navigate the complex regulatory landscape, the need for robust compliance frameworks and proactive supervisory measures has never been more essential.

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