FINRA ordered LPL Financial to pay $11.7 million in fines and restitution for what it called “widespread supervisory failures” pertaining to sales of complex products. According to the regulator authority, from 2007 to April 2015, LPL failed to adequately supervise sales of particular investments, such as exchange-traded funds, variable annuities, and nontraded real estate investment trusts. Additionally, LPL did not properly deliver over fourteen million trade confirmations to customers.
LPL had no system set up to watch the amount of time customers held securities in their accounts or to enforce limits on concentrations of complex products in customer accounts. The systems that LPL did have set up to watch trading activity in customer accounts were ravaged by “multiple deficiencies.” For example, LPL did not create proper anti-money laundering alerts and failed to deliver trade confirmations in 67,000 customer accounts. FINRA also penalized LPL for not supervising advertising and other communications, such as brokers’ use of consolidated reports.
The penalty includes a $10 million fine and restitution of $1.7 million to customers who were sold certain ETFs. FINRA said the firm may pay additional compensation to ETF purchasers “pending a review of its ETF systems and procedures.”
Brad Bennet, FINRA’s chief of enforcement, stated, “LPL’s supervisory breakdowns resulted from a sustained failure to devote sufficient resources to compliance programs integral to numerous aspects of its business. With today’s action, FINRA reaffirms that there is little room in the industry for lax supervision and that it will not hesitate to order firms to review and correct substandard supervisory systems and controls, and pay restitution to affected customers.”
This penalty is merely the latest in a string of regulatory actions that have haunted LPL over the last year. In late October, CEO Mark Casady apologized to shareholder for the delay in fixing its compliance issues, and the firm took a $23 million charge to resolve yet undisclosed regulatory issues.
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