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.
- Differences Between State and SEC Regulation of Investment Advisors States may impose licensing or registration requirements on IARs doing business in their jurisdiction, even if the IAR works for an SEC-registered firm. States may investigate and prosecute fraud by any IAR in their jurisdiction, even if the individual works for an SEC-registered firm.
Ameriprise Financial Fined, Censured for Prospectus Delivery Failures
FINRA censured Ameriprise Financial and fined the firm $525,000 after it determined that Ameriprise failed to satisfy the requirement that it deliver prospectuses to mutual fund customers within three days of a purchase transaction. The firm neither admitted nor denied the findings but consented to the sanctions.
Ameriprise used third-party providers to deliver prospectuses for the mutual funds it sold. While it provided electronic information to the firms that were contracted to furnish the prospectuses, it did not check that they did so and had no processes or procedures in place to do so on a daily or weekly basis.
Ameriprise did have a requirement for a monthly review of a sample of transactions, but the requirement failed to describe specifically what the reviewer was required to look for, or which actions the reviewer must take if deficiencies in prospectus delivery were found.
While the main reason for the delivery failures was found to be a failure on the part of the mutual fund companies to have on hand adequate paper copies of their prospectuses, which meant that when the third-party providers requested copies there were none to be had to meet the three-day deadline.
Ameriprise never acted to make sure that prospectuses were delivered on time, either. Its main service provider offered print-on-demand (POD) capability to its clients, which would allow the needed copies to be printed and delivered in time. But Ameriprise never used the service until later on. As a result, many customers never received the prospectuses or the disclosures they contained by the settlement date.
Ameriprise executed more than 15 million transactions that required delivery of a prospectus or summary prospectus, and was therefore required to have in place procedures to monitor prospectus delivery to ensure that customers received them in a timely manner. Instead it relied on its third-party providers to do the job, without adequately supervising them or the process or taking action to correct failures.
Credit Suisse Censured, Fined in Three Separate Actions
FINRA censured Credit Suisse and fined the firm $250,000 after it found that the firm failed to supervise and monitor trading activity on its proprietary electronic trading systems so that it could prevent exchange-level crosses. Two proprietary electronic trading systems generated exchange-level crosses of orders, and Credit Suisse’s supervisory system failed to alert the proper individuals on how often this happened and how many times it occurred. The firm was also found to have failed to provide adequate documentary evidence of supervisory reviews conducted on the trading activity generated by the proprietary electronic trading systems.
In the second action, Credit Suisse was censured and fined $92,500 for failure to report the correct contraparty’s identifier for transactions in TRACE-eligible securities to the Trade Reporting and Compliance Engine (TRACE); failure to report to TRACE transactions in TRACE-eligible securities it was required to report; and reporting to TRACE transactions in TRACE-eligible securities it was not required to report.
Credit Suisse was also found to have failed to report transactions in TRACE-eligible securities to TRACE within 15 minutes of the execution time; failed to report the correct trade execution time for transactions in TRACE-eligible securities to TRACE; and to have double-reported some transactions in TRACE-eligible securities to TRACE. It also failed to accept or decline transactions in reportable securities in the FINRA/NASDAQ Trade Reporting Facility (FNTRF) or the Over-the-Counter Reporting Facility (OTCRF) within 20 minutes after execution when it had an obligation to do so.
In the third action, the firm was censured and fined $70,000 on findings of multiple failures in Order Audit Trail System (OATS) reporting that included failure to report ROEs in a timely manner; transmission of new order reports and subsequent related reports that carried a timestamp earlier than the timestamp on the new order reports they were related to; sending of reports that had inaccurate, missing or incorrectly formatted information; and failure to report to the FNTRF last sale reports of transactions in designated securities executed during normal market hours.
In each case, Credit Suisse neither admitted nor denied the findings, but consented to FINRA’s actions.