FINRA Slaps 3 BDs for Consolidated Reporting Failures.
Byline: Melanie Waddell
The Financial Industry Regulatory Authority warned broker-dealers Monday to ensure their consolidated reports are clear and accurate after sanctioning three firms for such violations.
H. Beck, Inc., LaSalle St. Securities, LLC, and J.P. Turner & Company, LLC were each fined $425,000, $175,000 and $100,000, respectively, for inadequate supervision of consolidated reports provided to customers and other violations.
While a consolidated report is a single document that combines information regarding most or all of a customer's financial holdings, regardless of where those assets are held, such reports do not replace official customer account statements required by FINRA rules and disseminated through a separate process, FINRA stated.
During routine exams, FINRA found that numerous registered reps of the three firms prepared and disseminated consolidated reports to customers with little or no prior review by a principal.
"H. Beck and J.P. Turner did not have any written procedures specifically addressing the use and supervision of consolidated reports, while LaSalle St. Securities had written procedures related to consolidated reports, it failed to enforce the procedures and did not provide proper training to its representatives regarding their use," FINRA said.
Across each firm, many registered reps utilized consolidated report systems that allowed them to enter customized values for accounts or investments "held away from the firm yet the firms' procedures did not provide safeguards, such as requiring supporting data, to verify accuracy."
Brad Bennett, FINRA's executive vice president and chief of enforcement, said in a statement that "inadequate controls around consolidated reporting create the risk that unscrupulous representatives will provide inaccurate and misleading reports to their clients to conceal fraud and theft."
FINRA, Bennett said, "will continue to examine" for inadequate controls around consolidated reports "sanction firms that are not supervising this function properly."
H. Beck, Inc., LaSalle St. Securities and J.P. Turner neither admitted nor denied the charges, but consented to the entry of FINRA's findings.
FINRA pointed to its Regulatory Notice 10-19, which reminds firms that consolidated reports must be clear, accurate and not misleading, and if not rigorously supervised, they can raise a number of regulatory concerns, including the potential for communicating inaccurate, confusing or misleading information to customers, lapses in supervisory controls, and the use of these reports for fraudulent or unethical purposes.
The notice also stresses that if a firm is unable to adequately supervise the use of the reports, it must prohibit their dissemination and take steps to ensure that registered reps comply with the prohibition.
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