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Regulation and Compliance > Federal Regulation > FINRA

FINRA Settles With 56 BDs, Gets $89M in Restitution Under Mutual Fund Fee Initiative

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The Financial Industry Regulatory Authority said Wednesday that it has reached settlements with 56 broker-dealers and obtained $89 million in restitution for nearly 110,000 charitable and retirement accounts under its mutual fund fee waiver initiative.

The firms, including Park Avenue Securities and Western International Securities which agreed to settlements Wednesday, failed to waive mutual fund sales charges for the eligible accounts and failed to reasonably supervise the sale of mutual funds offering sales charge waivers.

“This was a multi-year effort with the goal of obtaining meaningful restitution for mutual fund investors who were not afforded the sales charge waivers they were entitled to,” said Susan Schroeder, head of FINRA Enforcement, in a statement. “Ensuring that harmed customers are made whole is our highest priority and in some instances, FINRA granted credit for extraordinary cooperation to those firms who were proactive in identifying and fixing the issue, and who quickly remediated affected customers.”

The settlements reached Wednesday mark the end of the initiative, and are not part of FINRA’s 529 Plan Share Class Initiative, which allows broker-dealers to self-report share class violations related to 529 plans.

In 2015, FINRA reached settlements with 10 broker-dealers who self-reported that their sales representatives failed to consider applicable sales charge waivers for charitable and retirement plan accounts that had purchased mutual funds.

FINRA found that although the mutual funds available on the firms’ retail platforms offered these fee waivers to charitable and retirement plan accounts, at various times dating back to at least July 2009, the firms did not waive the sales charges when they offered Class A shares to these customers. FINRA also found that the firms failed to reasonably supervise the application of sales charge waivers to eligible mutual fund sales.

Broker-dealers continued to self-report failing to offer mutual fund fee waivers, but FINRA discovered the infractions at other firms during exams.

In May 2016, FINRA launched a targeted exam to review firms that had not self-reported the issue. Through the sweep, FINRA sanctioned 11 firms and reached settlements with another 35 firms, most of which self-reported prior to the sweep.

In total, FINRA sanctioned 56 firms for failing to waive mutual fund sales charges for eligible charitable organizations and retirement accounts, and failing to reasonably supervise the area.

Of the 56 firms sanctioned, 43 were granted extraordinary cooperation and not fined.

On Thursday, FINRA released new guidance that provides further clarification on credit for extraordinary cooperation.

— Related : FINRA Clarifies What ‘Extraordinary Cooperation’ Really Means


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