More On Legal & Compliancefrom The Advisor's Professional Library
- Where Are We Headed? The ultimate compliance goal is to help ensure that everyone associated with an advisory firm acts ethically at all times. Advisors and RIAs should do the right thing, even when regulators are not looking over their shoulders.
- The Few and the Proud: Chief Compliance Officers CCOs make significant contributions to success of an RIA, designing and implementing compliance programs that prevent, detect and correct securities law violations. When major compliance problems occur at firms, CCOs will likely receive regulatory consequences.
The Financial Industry Regulatory Authority announced Thursday that it had fined Morgan Stanley & Co. and Morgan Stanley Smith Barney $1 million, as well as ordering restitution and interest of $371,000 to customers for excessive markups and markdowns charged to customers on corporate and municipal bond transactions, and related supervision violations.
Morgan Stanley neither admitted nor denied the charges, but consented to the entry of FINRA's findings. In an email statement to AdvisorOne, the company said, "Morgan Stanley Smith Barney cooperated fully with FINRA and is pleased to settle this matter. The trades in question represent a tiny fraction of the millions of trades executed for clients during the time period, and we are continuing to improve our control processes governing pricing."
Thomas Gira, executive vice president for FINRA Market Regulation, said of the action in a statement, "Firms must ensure that customers who buy and sell securities, including corporate and municipal bonds, receive fair and reasonable prices regardless of whether a markup or markdown is above or below 5%. Morgan Stanley clearly violated fair pricing standards and FINRA will continue to require firms that violate such standards to make their customers whole."
According to its findings, FINRA said Morgan Stanley had charged markups and markdowns ranging from below 5% to 13.8% on corporate and municipal bond transactions; these charges were higher than warranted, considering such factors as market conditions, execution cost and the value of services rendered to the customers.
The firm's supervisory system for corporate and municipal bond markups and markdowns was found to be inadequate, as were supervisory reports that were not designed to include markups and markdowns that were below 5% percent but were still excessive. Also, prior to August 2009, the firm's policies and procedures considered only one of two charges added by the firm to the price of a bond in determining whether a markup or markdown was fair and reasonable.