LPL Financial LLC has agreed to pay a $5.5 million fine as part of a settlement with the Financial Industry Regulatory Authority (FINRA).
From January 2012 through August 2019, LPL failed to reasonably supervise transactions that the company’s registered agents made directly with product sponsors on behalf of corporate customers (i.e., direct business transactions) in violation of NASD Rule 3010 and FINRA Rules 3110 and 2010.
LPL did not take steps reasonably designed to ensure that its representatives reported such transactions to the trade blotter used by the company to identify potential sales practice violations, resulting in approximately 830,000 such transactions not appearing on the blotter. The company did not monitor these transactions as it did not generate exception reports from these transactions to identify potential sales practice violations, including potentially inappropriate transactions.
For approximately two million additional direct business transactions, LPL also failed to ensure that it collected information about customer investment profiles (eg, customer ages, investment time horizons, and liquidity needs) that was relevant to making certain suitability determinations.
By failing to collect required customer information, LPL failed to prepare and maintain required books and records in violation of Section 17(a) of the Securities Exchange Act of 1934, Rule 17a-3 of the Exchange Act, Rule 3010 of the NASD and FINRA Rules 3110, 4511 and 2010.
In addition, from February 2016 to June 2020, LPL sent customers approximately 11,300 switching letters that contained inaccurate information about the fees customers incurred when switching from one security to another in violation of FINRA’s 2010 rule .
LPL also violated FINRA Rules 3110 and 2010 by failing to reasonably supervise the appropriateness of certain transactions because the firm’s supervisory review tool contained incorrect information about the fees paid by customers in connection with certain switches.
Finally, from May 2017 to November 2022, LPL 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 system of supervision, including written procedures reasonably designed to ensure that recommendations of business development companies (Registered BDCs) have complied with FINRA Rule 2111 and the Best Interest’s Care Obligation Regulation.
In addition to the fine, the company agreed to a reprimand and to pay restitution of $651,374.51 plus interest.