FINRA fines Merrill Lynch $1.4M over supervisory lapses
FINRA fined Merrill Lynch $1.4 million as a result of lapses in its supervisory system.
“FINRA found that from at least April 2013 through June 2015, Merrill's customers engaged in extended settlement transactions with notional values of hundreds of millions of dollars across numerous firm product lines,” FINRA says in a statement. “Despite the prevalence of these transactions, Merrill's supervisory system, including written supervisory procedures, was not reasonably designed to identify and evaluate extended settlement transactions for compliance with margin and net capital rules.”
The regulator claims that Merrill’s oversight in supervising, identifying and evaluating extended settlement transactions by its clients resulted in inaccurate computations of margin requirements and net capital deductions for tens of thousands of transactions. These miscalculations led to margin rule and net capital violations, as well as inaccurate records.
Merrill Lynch did not respond to a request for comment. In order to settle the issue the firm did not admit to or deny the charges, but did consent to the entry of FINRA's findings.
FINRA also discovered that Merrill improperly extended hundreds of millions of dollars of margin credit in numerous retail customers’ cash accounts. This is a violation of Regulation T, which says these transactions should have only been permitted in margin accounts rather than clients’ cash accounts.
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“Firms that engage in extended settlement transactions must implement a supervisory system and procedures reasonably tailored to ensure compliance with applicable rules such as margin and net capital rules, as well as Regulation T,” said Susan Schroeder, FINRA executive vice president. “Furthermore, firms that are aware of deficiencies in their supervisory systems must promptly remediate them”