A Wells Fargo subsidiary has been fined $425,000 by the Financial Industry Regulatory Authority (Finra) for reporting only average trade prices on millions of client transactions, without disclosing that fact.
Wells Fargo Securities agreed to the fine and a censure under an agreement with the regulator in which it neither admitted to nor denied the charges.
From June 2015 to August 2021, the bank's affiliate sent about 2.27 million trade confirmations to customers that failed to disclose that for orders containing multiple executions trade prices reflected only average prices, Finra said. The bank also failed to disclose that actual execution prices were available upon request.
Finra noted that the bank discovered the problem in 2020 but failed to address the issue until almost a year later.
“Trade confirmations protect investors who buy or sell securities through broker-dealers by, among other things, alerting them to potential conflicts of interest with their broker-dealers and providing them the means to verify the terms of their transactions and evaluate transaction costs and the quality of their broker-dealers’ executions,” Finra said in the settlement, published Friday.
In addition, the firm’s supervisory system was not reasonably designed to achieve compliance with a multitude of securities laws, Finra alleged.
Specifically, Wells Fargo Securities’ written supervisory procedures required a monthly review of a specified sample of trade confirmations, but did not expressly require a review to ensure that the firm included average-price disclosures in confirmations for orders effected via multiple executions at multiple prices, Finra said.
“This was so even though a significant number of trades executed by the Outsourced Trading Services Desk involved multiple executions at multiple prices and, therefore, required the firm to include average-price disclosures on trade confirmations,” Finra said.
As a result, a system coding error that impacted one trading desk (the “Outsourced Trading Services Desk”) at the firm, went undetected for over five years.
Wells Fargo reported the issue in August 2021, 10 months after discovering the error, which was discovered while conducting an unrelated review in October 2020, Finra said.
Even after discovering the problem, “the firm continued its efforts to transition customers to a different order management system, but did not otherwise take steps to timely fix the issue until August 2021. As a result, even after discovering the issue, the firm continued for approximately 10 months to send trade confirmations to customers that omitted the required average-price disclosures,” the regulator added.
“We have fully cooperated with FINRA and we are pleased to have resolved this matter, which we self-identified and self-reported," Wells Fargo spokesperson Allison Chin-Leong said in an emailed statement.