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Screenshot of a breaking news alert e-mail from Q2 2017
The Financial Industry Regulatory Authority (FINRA) announced today that it has sanctioned three firms, namely large US broker-dealers H. Beck, Inc. and LaSalle St. Securities, LLC, as well as independent brokerage and investment banking firm J.P. Turner & Company, LLC – with fines of $425,000, $175,000 and $100,000, respectively, for inadequate supervision of consolidated reports provided to customers and other violations.
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. Consolidated reports supplement, but do not replace official customer account statements required by FINRA rules and disseminated through a separate process.
FINRA Regulatory Notice 10-19 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 representatives comply with the prohibition.
During the course of routine examinations of the firms, FINRA found that numerous registered representatives of the firms prepared and disseminated consolidated reports to customers either without adequate review or any 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.
Across each firm, many registered representatives 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 Executive Vice President and Chief of Enforcement, said, “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. These actions along with previous actions involving consolidated reports should be a message to firms that we will continue to examine for this issue and sanction firms that are not supervising this function properly.”
In concluding these settlements, 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.
For the official announcement from FINRA, click here.