Finra has fined Jersey City, N.J.-based BNY Pershing $1.4 million for allegedly listing inaccurate interest rate numbers on more than one million customer account statements and its online portal.
The fine was part of a consent agreement with the company, Finra said. The penalties also included a censure.
"Pershing is pleased to have resolved this matter," company spokesman Ryan Wells said. "We take our regulatory and compliance responsibilities very seriously."
Between January 2010 and December 2022, Pershing sent its customers account statements and trade confirmations with inaccurate interest rates for certain variable rate securities, according to the broker-dealer regulator. Finra also found the same inaccurate numbers were present in the online access portals. Pershing’s customers use the portals, as do the registered representatives of the firms that use Pershing’s clearing services, Finra said.
“Pershing uses the interest rate listed in its security master system when populating certain information on customer account statements and transaction confirmations, which caused the firm to in certain instances distribute inaccurate transaction confirmations and customer account statements,” the letter said.
There were two reasons for the interest rate information being wrong, according to Finra. The first had to do with the third-party vendor Pershing uses that provides interest rate information for variable rate securities issued by foreign issuers. Between January 2016 and September 2022, the vendor did not provide any updated interest rate information for at least 13,000 foreign variable rate securities, according to Finra.
“As a result, for each such security, Pershing’s security master system continued to reflect the initial interest rate, even after the security’s interest rate had changed,” the letter said.
The second reason had to do with Pershing’s own security master system, which could not record a zero percent interest rate for some variable rate domestic bonds, Finra said. When the firm received updated rate information for the bonds, it would submit them into its security master system. If the rate was zero, the system would just revert that number to the most recent non-zero number, according to the regulator.
In addition to the more than one million account statements that were inaccurate, Finra said that the inaccurate numbers also resulted in at least 200,000 trade confirmations having the wrong “current coupon” rate for certain variable rate securities. The false numbers on the online portals meant that the current interest rate, accrued interest, estimated annual income, and estimated annual yield were also all wrong, Finra said.
Pershing violated Exchange Act Rule 17a-3(a)(8), NASD Rule 2340, and FINRA Rules 2231, 4511, and 2010, according to FINRA.