Published on Jan 29th, 2024 |

Reg BI Violations | Broker Suspended

News and Alerts

Introduction

FINRA has suspended a Broker for 18 months due to violations of Regulation Best Interest (“Reg BI”). These violations were discovered during a FINRA Exam of a New York based Firm.

Reg BI will remain a major focus for regulators in the foreseeable future, and it is vital that Firms adopt proper supervisory procedures to monitor the trading activities of their employees.

What Happened?

What Happened?

According to FINRA:

  • An associated person at a New York based Broker Dealer excessively traded on eight customer accounts from December 2016 through April 2022
    • Annualized cost-to-equity ratios of 58 to 289 percent.
    • Annualized turnover rates of 14.36 to 63.24.
    • Total trading costs of $444,176 of which $343, 416 were commissions.
    • $235, 494 in total realized losses.
  • Three of the eight customers were older adults, who are expected to be provided with additional protections to prevent financial abuse.
  • The associated person received an email complaint seeking $17,500 in damages due to the excessive trading on their account but never forwarded the complaint to the proper Compliance Officers.
    • Additionally, the employee never amended his U4 to identify the customer complaint.
  • FINRA has suspended the employee from associating with any FINRA member for eighteen months.

Vigilant's Conclusion

Vigilant’s Conclusion

Reg BI places an expectation for associated persons to observe high standards of commercial honor and just and equitable principles of trade. The appropriateness of a trade is based off the entire portfolio and goals, not viewed in isolation.

To limit the chance of resource-consuming regulatory investigations, it is important that Firms not only have sufficient policies and procedures but also properly supervise employee behavior in a way that can identify problems when they begin.

Vigilant provides an initial gap analysis, amongst a host of other Compliance Solutions, that can help your Firm identify potential compliance problems. Reach out to us today with any concerns you may have.

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