Three Cetera Financial Group broker-dealers have agreed to pay a total fine of $1 million to settle claims that their supervisory systems and procedures were deficient when handling securities transactions made by dually registered representatives, according to the Financial Industry Regulatory Authority.
Over a period of several years, the dually registered reps “managed more than $80 billion in customer assets across more than 47,000 accounts,” according to FINRA. The Cetera firms “were aware of the supervisory deficiencies” that were identified in Securities and Exchange Commission examinations in 2013, 2015 and 2017, FINRA alleged.
The advisors were registered both at Cetera-branded broker-dealers and at “unaffiliated or ‘outside’ registered investments advisors (RIAs),” the regulatory group said.
Without admitting or denying the allegations, Cetera Advisor Networks, Cetera Advisors and Cetera Financial Specialists recently signed a FINRA letter of acceptance, waiver, and consent and agreed to FINRA’s sanctions, which included a censure and an agreement that they would review and revise, as necessary, systems, policies and procedures related to the supervision of dually-registered reps’ securities transactions.
Cetera Advisor Networks will pay a $750,000 fine, while Cetera Advisors will pay $150,000; Cetera Financial Specialists is set to pay $100,000. FINRA signed the letter agreeing to the settlement Tuesday.
“We are pleased to have settled this historical matter, having taken the corrective actions to resolve the matters identified by FINRA,” a Cetera spokesperson told ThinkAdvisor Friday. “Our clients’ fiduciary interests remain top priority and we do everything we can to ensure our policies and procedures support those interests.”
Over a period of several years, Cetera Advisor Networks and Cetera Advisors (2011-2018) and Cetera Financial Specialists (2012-2018), “failed to establish, maintain and enforce a supervisory system and written supervisory procedures reasonably designed to supervise certain private securities transactions conducted by their” dually registered reps, FINRA claimed.
“Yet, despite several efforts to address such deficiencies,” the Cetera divisions “failed to implement systems and procedures to reasonably supervise the transactions,” FINRA claimed. Their “failure to supervise the DRRs’ participation in private securities transactions violated NASD Rule 3040(c) and FINRA Rules 3280(c) and 2010, according to FINRA.
Their “failures to establish, maintain and enforce reasonable supervisory systems and written supervisory procedures” also violated NASD Rules 3010(a) and (b) and FINRA Rules 3110(a) and (b) and 2010, FINRA claimed.
In addition, the broker-dealers failed to make and preserve related books and records in violation of NASD Rule 3110 and FINRA Rules 4511 and 2010, FINRA alleged.