LPL Financial has been ordered to pay a $6.5 million fine over a litany of supervisory failures that led to flawed background checks and the deletion of more than 1 million customer records from 2014 to 2019, among other snafus, according to the Financial Industry Regulatory Authority.
In a letter of acceptance, waiver and consent signed by LPL on Wednesday and accepted by FINRA Thursday, the firm agreed to the fine and a censure.
In a statement provided to ThinkAdvisor on Monday, LPL said: “We take our compliance obligations seriously, and have been proactive in identifying, reporting and remediating these issues. We’ve made significant investments to strengthen our capabilities related to this important work.”
From January 2014 to September 2019, LPL “failed to establish and maintain a supervisory system, including written procedures, reasonably designed to achieve compliance with certain of its record retention obligations,” violating NASD Rule 3010 and FINRA Rules 3110 and 2010, FINRA claimed.
As a result, LPL failed to “retain electronic records in the required format, preserve certain electronic records, and notify FINRA prior to employing electronic storage media,” in violation of the Exchange Act and FINRA Rules 4511 and 2010, FINRA alleged.
“The firm’s failure affected at least 87 million records and led to the permanent deletion of over 1.5 million customer communications maintained by a third-party data vendor,” FINRA alleged.
LPL also “failed to send account notices that are required to be sent to customers at 36-month intervals for each account in which a suitability determination had been made” to more than 1 million clients, in violation of the Exchange Act and FINRA Rules 4511 and 2010, according to FINRA.
From January 2014 through the present, LPL also “failed to fingerprint more than 7,000 non-registered associated persons and thus failed to screen these individuals for statutory disqualification based on criminal convictions,” FINRA alleged.
That “failure arose from the firm’s failure to maintain a reasonable supervisory system and procedures to identify and properly screen all individuals who became associated with the firm in a non-registered capacity,” according to the industry self-regulator. The firm self-reported that failure to FINRA and commenced a remedial review.
Separately, from January 2017 to September 2019, LPL also “permitted a non-registered associated person, who was subject to statutory disqualification, to remain associated with the firm,” according to FINRA.
Last, from May 2015 to the present, LPL “failed to establish and maintain a supervisory system reasonably designed to supervise certain consolidated reports,” FINRA alleged.
“LPL was not aware of, and therefore failed to reasonably supervise, certain tools that its approved third-party vendors provided to the firm’s registered representatives to create and disseminate consolidated reports,” according to FINRA.
An ex-registered representative of LPL “exploited” its “supervisory deficiencies in perpetrating a Ponzi scheme through which he converted at least $1 million of LPL customers’ money,” according to FINRA.
These fines were smaller: $1 million for SG Americas and $2.5 million for Deutsche Bank. Deutsche Bank declined to comment and SG Americas did not immediately respond to a request for comment.
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