LPL Fined $5.5M for Transaction Supervision Issues
The broker-dealer also will pay $650,000 in restitution plus interest to 125 clients affected by its failures from 2012 to 2019.
LPL Financial agreed Wednesday to resolve allegations regarding transaction supervision issues that affected 125 clients between January 2012 and August 2019, including a payment of $5.5 million for a fine and $650,000 in restitution plus interest, according to an Financial Industry Regulatory Authority acceptance letter.
Between January 2012 and August 2019, LPL failed to reasonably supervise transactions that the firm’s registered representatives placed directly with product sponsors on behalf of clients — i.e., direct business transactions — in violation of FINRA Rules 3110 and 2010, the self-regulatory group says.
LPL did not take steps “reasonably designed” to ensure that its representatives reported such transactions on the trade blotter the firm used to identify potential sales practice violations, resulting in roughly 830,000 such transactions not appearing on the blotter, FINRA adds.
Plus, FINRA alleges, the firm did not adequately supervise these transactions since it did not generate exception reports that could help to identify potential sales practice violations, including potentially unsuitable transactions.
Likewise, for about 2 million additional direct business transactions, LPL also allegedly failed to ensure that it collected information related to clients’ investment profiles (such as their ages, investment time horizons and liquidity needs) relevant for making certain suitability determinations.
In addition, FINRA says LPL also sent clients roughly 11,300 “switch letters” that contained inaccurate information about the charges incurred by moving from one security to another, in violation of FINRA Rule 2010. These violations were alleged to have taken place between February 2016 through June 2020, and they too involved issues related to suitability monitoring.
Finally, from May 2017 to November 2022, LPL allegedly violated FINRA Rules 3110 and 2010 and Rule 15l-1 of the Securities Exchange Act of 1934 by “failing to establish, maintain and enforce a supervisory system, including written procedures, reasonably designed to ensure that recommendations of publicly traded securities of business development companies … complied with FINRA Rule 2111 and Regulation Best Interest’s Care Obligation.”
The agreement requires LPL, which neither admits nor denies the allegations, to furnish proof within 90 days that it has remedied the problems identified by FINRA investigators.
In response to a request for comment, LPL said via email that it “takes its compliance obligations seriously and fully cooperated with the FINRA investigation, including self-reporting certain identified issues. LPL is pleased to have resolved these matters.”
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