Commentary Aug 12, 2022 at 07:44 AM Share & Print
The Financial Industry Regulatory Authority fined LPL Financial $300,000 for allegedly failing to accurately calculate its required client reserve, which resulted in two hindsight deficiencies totaling about $162 million, according to FINRA.
The errors caused the firm to maintain inaccurate books and records and to file at least 17 Financial and Operational Combined Uniform Single reports that inaccurately reported its customer reserve, FINRA said.
LPL’s violations happened between “at least” December 2018 and April 2020, according to FINRA.
As a result of its failures, LPL violated the Securities Exchange Act of 1934, Exchange Act Rule 15c3-3(e) and F1NRA Rule 2010 governing standards of commercial honor and principles of trade, FINRA claimed. The Exchange Act rules aim to protect client assets from being improperly used by a broker-dealer for its own purposes, and ensure the prompt return of client assets in case a BD becomes insolvent, FINRA pointed out.
supervisory system, including written procedures, was also not reasonably designed to achieve compliance with client reserve requirements, according to FINRA. That led LPL to violate FINRA Rule 3110 governing supervision requirements also.
The firm accepted and consented to the broker-dealer industry self-regulator’s findings without admitting or denying them, according to the FINRA letter of acceptance, waiver and consent that the firm signed on Aug. 1, consenting to the imposition of FINRA’s sanctions, which also included a censure. FINRA signed the AWC letter on Thursday.
The country’s largest independent BD also agreed that, within 180 days of accepting the AWC, it would certify in writing to FINRA that it had implemented supervisory systems and written supervisory procedures reasonably designed to achieve compliance with the “customer” reserve requirements of the Securities and Exchange Commission’s Exchange Act Rule 15c3-3.
LPL did not immediately respond to a request for comment on Friday about FINRA’s allegations.