The Financial Industry Regulatory Authority is conducting targeted exams of firms’ systems and procedures as it relates to providing mutual fund discounts or fee waivers to clients.
The targeted exam letter was sent to small number of broker-dealer firms that were identified through a risk-based analysis, according to FINRA.
The targeted exam was prompted by a June 4 settlement with Merrill Lynch, in which FINRA ordered the firm to pay $7.2 million (including interest) in restitution to customers who had not received Rights of Reinstatement, or RoR, related discounts or waivers.
FINRA also has included a review of RoR discounts and waivers in some of its 2020 exams and believes a targeted exam is warranted to assess other firms’ practices.
The letter asks firms to identify whether it has systems and procedures in place reasonably designed to provide eligible mutual fund customers with RoR sales charge waivers and/or fee rebates, and to describe all such systems and procedures in effect during the relevant period.
BDs are asked to include: a) all documents relating to the systems and procedures (e.g., written supervisory procedures, policy manuals, job aids, training materials, technical specification/requirements documents for any automated controls, and quality control testing and audit results for any controls); and b) the time period when the systems and procedures were in effect.
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