The Financial Industry Regulatory Authority (FINRA) has fined Wells Fargo Clearing Services $275,000 and issued a censure after finding the firm failed to maintain an adequate supervisory system to prevent unregistered municipal advisory activity.
Wells Fargo Clearing Services Hit With $275,000 Fine by FINRA
Between June 2019 and November 2024, FINRA says Wells Fargo did not have a system, including written supervisory procedures, that was reasonably designed to comply with Section 15B(a)(1)(B) of the Securities Exchange Act of 1934.
This provision prohibits broker-dealers from giving investment advice to municipal entities without registering as a municipal adviser.
FINRA found that although the bank’s procedures prohibited staff from advising municipal clients on investing proceeds from municipal securities, it failed to clearly define what constituted such advice.
The firm is also said to have lacked processes to identify whether municipal account deposits were bond proceeds, and had no effective controls to detect or prevent unregistered advisory activity.
The regulator said Wells Fargo’s reliance on client agreements and end-of-year disclosures to mitigate the risk was inadequate, as the warnings were not sufficiently prominent.
The firm, which employs over 18,000 registered representatives across 5,000 branches, updated its supervisory framework in November 2024.
By breaching Municipal Securities Rulemaking Board (MSRB) Rule G-27, as well as FINRA Rules 3110 and 2010, Wells Fargo failed to “observe high standards of commercial honour and just and equitable principles of trade,” FINRA said.
The bank agreed to the settlement without admitting or denying the findings and waived its right to contest the sanctions.
