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December 29, 2015 at 05:43 AM
Barclays Capital on Tuesday agreed to pay the Financial Industry Regulatory Authority $13.75 million in sanctions for suitability violations related to mutual fund transactions, including “switching.”
Without admitting or denying the charges, Barclays Capital agreed to pay more than $10 million in restitution, including interest, to affected customers for mutual fund-related suitability violations, and for failing to provide applicable breakpoint discounts to certain customers, which resulted in $800,000 in client losses. Barclays was also censured and fined $3.75 million.
LPL Financial had to pay FINRA nearly $12 million in May for mutual fund switching, among various other widespread violations.
In Barclays’ case, FINRA found that from January 2010 through June 2015, Barclays’ supervisory systems were not sufficient to prevent unsuitable switching or to meet certain of the firm’s obligations regarding the sale of mutual funds to retail brokerage customers.
In particular, Barclays “incorrectly defined a mutual fund switch in its supervisory procedures to require three separate transactions within a certain time frame,” FINRA states. Based on this incorrect definition, “Barclays failed to act on thousands of automated alerts for potentially unsuitable transactions, excluded transactions from review for suitability and failed to ensure that disclosure letters were sent to customers regarding the transaction costs.”
As a result, during the five-year period, there were more than 6,100 unsuitable mutual fund switches resulting in customer harm of approximately $8.63 million, according to FINRA.
