The hits keep coming for Wells Fargo, as the Financial Industry Regulatory Authority (Finra) on Monday ordered the company to pay more than $3.4 million in restitution for selling customers “unsuitable” volatility-linked exchange-traded products and for failure to supervise its reps.

“Certain Wells Fargo representatives mistakenly believed that the products could be used as a long-term hedge on their customers’ equity positions in the event of a market downturn,” Finra said in a statement. “In fact, volatility-linked ETPs are generally short-term trading products that degrade significantly over time and should not be used as part of a long-term buy-and-hold investment strategy.”

Finra found that between July 1, 2010, and May 1, 2012, certain Wells Fargo registered representatives recommended volatility-linked ETPs without fully understanding their risks and features. The fines were levied on Wells Fargo Clearing Services LLC and Wells Fargo Advisors Financial Network LLC.

To further put the sales practices and supervisory responsibilities of volatile products under the microscope, Finra on Monday released a regulatory notice, “Heightened Supervision of Complex Products.”

“Firms soliciting sales of volatility-linked ETPs should already be well aware of the unique risks that they pose,” says Susan Schroeder, executive vice president of Finra's Department of Enforcement. “But Finra's Regulatory Notice 17-32 is intended to further educate the industry so that member firms can assess their own practices and take appropriate remedial action if necessary,”

Finra found that Wells Fargo failed to implement a reasonable system to supervise solicitations and sales of these products. The firm took remedial action to correct its supervisory deficiencies in May 2012, prior to detection by Finra and around the time that the firm was fined for similar violations relating to sales of leveraged and inverse ETPs, Finra says.

In addition, Finra says Wells Fargo provided substantial assistance to Finra's investigation by, among other things, engaging a consulting firm to determine the appropriate restitution to be provided to affected customers.

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