More On Legal & Compliancefrom The Advisor's Professional Library
- Do’s and Don’ts of Advisory Contracts In preparation for a compliance exam, securities regulators typically will ask to see copies of an RIAs advisory agreements. An RIA must be able to produce requested contracts and the contracts must comply with applicable SEC or state rules.
- Anti-Fraud Provisions of the Investment Advisers Act RIAs and IARs should view themselves as fiduciaries at all times, whether they meet the legal definition or not. Deviating from the fiduciary standard of full disclosure while courting clients may cause the advisor significant problems.
The Financial Industry Regulatory Authority (FINRA) took disciplinary action in September against Merrill Lynch, LPL Financial, National Financial Services and Van Kampen Funds.
FINRA censured and fined the four financial firms for various violations, as well as ordering them to perform a number of corrective actions. None of the firms admitted or denied wrongdoing.
Merrill Lynch was censured and fined $400,000 on findings that it failed to enforce its anti-money laundering rules by accepting third-party checks for deposit into a customer’s account that, contrary to the procedures, did not identify that customer by name.
As a result, a customer who was a registered representative at another member firm was able to move more than $9 million of misappropriated funds through his Merrill Lynch cash management brokerage account.
FINRA also found that Merrill did not have internal compliance controls in place to ensure compliance with its deposit acceptance procedures regarding non-personal checks, or an adequate system to monitor deposit activity in accounts such as the registered representative’s that lacked securities activity and displayed indications of misconduct.
LPL Financial was censured and fined $22,500, and required to revise its WSPs regarding reporting of transactions to TRACE. FINRA said it had transmitted reports to the Order Audit Trail System that contained inaccurate account type codes and failed to report transactions in TRACE-eligible securities to TRACE within 15 minutes of the execution time. It also found inadequate supervision to achieve compliance on transaction reporting to TRACE.
National Financial was censured, fined $200,000 and required to notify all affected customers that it received inaccurate confirmations from the firm with respect to the percentage sales load charged on unit investment trust transactions. It also must certify that such notice was provided. Other findings regarding inaccurate sales load and dealer concession notifications, as well as faulty data from a third-party provider, were made.
Van Kampen Funds was censured, fined $17,500 and required to revise its WSPs regarding the Order Audit Trail System. FINRA found a failure to transmit all of its ROEs to OATS on numerous business days for over a year, as well as inadequate supervision regarding OATS.
The FINRA case numbers are 2009020383001, 2008012537201, 2010021681701 and 2008013163301, respectively.