Finra has fined and censured a New York firm for violations of some of the most basic written and supervisory requirements of Regulation Best Interest, dating back to June 2020 when the advice standards went into effect.
Finra charged the Long Island Financial Group, a five-person broker-dealer based in Roslyn, N.Y., with failure to supervise and “to establish, maintain, and enforce written policies and procedures reasonably designed to achieve compliance” with the regulation that requires brokers to put customers’ best interests ahead of their own financial gain, the regulator announced Friday.
Without admitting or denying guilt, Long Island Financial Group settled the charges for a $35,000 fine, a public censure and the requirement that it certify that it has remedied the compliance failures within 90 days.
“This case may not be not be sexy like fraud or excessive trading, but it’s important because it will cause Finra registered- broker dealers to say ‘regulators are now doing these exams and we have to have these written procedures in place showing our intent to train our brokers and personnel on Reg BI compliance,’” said Joe Wojciechowski, a partner with Chicago-based Stoltmann Law Offices.
Wojciechowski said this was the first settlement he’s seen that exclusively pertains to firms not having the written compliance requirements of Reg BI in place.
“But it won’t be the last,” Wojciechowski said. “I think Finra will bring a lot of these cases. Big firms have the compliance part of Reg BI down, but smaller firms that don’t have the resources are more likely to struggle. I also think that Finra made a stock Reg BI compliance manual available to broker-dealers, so it makes these types of deficiencies unforgiveable.”
According to Finra, Long Island Financial Group also “failed to establish and maintain a supervisory system, including written supervisory procedures, reasonably designed to achieve compliance with Reg BI.”
Additionally, the firm failed to deliver to its clients Form CRS, the customer relationship summary that broker-dealer clients and prospects are supposed to receive, explaining the firm’s service offerings, products, fees and conflicts of interest.
Last year, Finra’s 220-page annual exam and risk report detailed examiners’ findings that firms and their reps were not acting in clients in best interest or properly mitigating or eliminating conflicts of interest.
The latest case also follows the Securities and Exchange Commission’s first substantive Reg BI enforcement action in June against Western International Securities, Inc. and five of its registered reps for selling risky, illiquid and unrated debt securities that were unsuitable for average retail customers, the agency said.