US-based Financial Industry Regulatory Authority has fined Wachovia Securities and First Clearing $1.1m for the firms’ failure to provide more than 800,000 required notifications to customers over a five-year period ending in 2008.
As a part of the settlement with Financial Industry Regulatory Authority (FINRA), the firms are required to retain an independent consultant to review their supervisory systems and processes.
At the time of the activity at issue, Wachovia Securities and First Clearing were both subsidiaries and non-bank affiliates of Wachovia Corporation. In December 2008, Wachovia Corporation was acquired by Wells Fargo & Company.
FINRA found that the failures by Wachovia Securities and First Clearing were the result of various computer programming and operational problems that went undetected by the firms’ internal controls procedures and supervisors. Those failures included over 300,000 notifications of changes in investment objectives and approximately 340,000 notifications of changes of address.
FINRA also found that First Clearing failed to send notifications of the existence of clearing agreements to over 54,000 customers and failed to send required margin disclosure statements to more than 50,000 customers. First Clearing also failed to provide customers with trade confirmations for certain bond transactions that accurately reflected the ratings of bonds; failed to provide required information to holders of certain debt, including information about partial call notifications; and, failed to send notifications to customers about certain asset transfers.
In addition, FINRA found that Wachovia Securities and First Clearing failed to have written policies or procedures in place relating to the required notifications and failed to assign supervisory review for various automated mailing systems. FINRA found that the violations went undetected because of the firms’ failure to implement appropriate internal controls and testing. FINRA also found that Wachovia Securities and First Clearing failed to establish adequate supervisory systems and procedures relating to the required notifications.
FINRA found that the firms’ actions of Wachovia Securities and First Clearing violated the supervision, internal testing and controls, and other provisions of FINRA rules, as well the record keeping provisions of both FINRA rules and the federal securities laws.
Susan Merrill, FINRA’s executive vice president and chief of enforcement, said: These notices are an important form of investor protection — they help protect against changes that are erroneous, unauthorised, or, in the worst case, indicative of an effort to conceal misconduct involving a customer’s account. It is crucial that firms meet their customer notification obligations.
