Finra fines Pershing $3 million for customer protection rule violations

The clearing and custody unit failed to meet reserve requirements, the regulator said

Dec 29, 2014 @ 11:29 am

By Mason Braswell

The Financial Industry Regulatory Authority Inc. has fined Pershing $3 million for violating the Customer Protection Rule, which requires a certain level of funds be set aside to protect against broker-dealer misuse or insolvency.

For roughly nine months between 2010 and 2011, Pershing, a unit of Bank of New York Mellon Corp. that serves as a clearing firm for around $1 trillion in assets, failed to set aside as much cash as needed for a reserve account to meet the regulator's deposit requirements, Finra said. The deficiencies, which ranged from $4 million to $220 million, arose from Pershing's “misinterpretation” of certain aspects of the rule and inadequate supervision over how the firm calculated what it needed to set aside, the regulator concluded.

"Clearing firms have a fundamental responsibility to protect customer assets and must ensure that their supervisory systems are compliant with the Customer Protection Rule,” Finra's chief of enforcement, Brad Bennett, said in a statement. “Customers' assets were at risk because Pershing failed to establish systems to vet procedural changes with material impact to the reserve and possession and control positions."

Pershing, based in Jersey City, N.J., ranks as the largest broker-dealer clearing firm as measured by clients, with 811, according to Investment News' database.

Pershing agreed to the sanctions without admitting or denying the findings.

Finra said it discovered the alleged deficiencies during an onsite examination in 2011 and that the firm promptly conducted its own review of its reserve formula computation.

"We are pleased to have amicably resolved this matter," said Pershing spokesman Paul Patella. "The company has enhanced its controls in this important area."

0
Comments

What do you think?

View comments

Recommended for you

Featured video

INTV

What type of adviser uses Betterment for Advisors?

Cara Reisman, director of Betterment for Advisors, says those who outsource investment management or want to serve small accounts and the next generation are common users of their robo-adviser.

Latest news & opinion

Why the super wealthy may want to fund life insurance with a loan

If the rate of return on the policy exceeds the loan's interest rate over the life of the contract, the client comes out ahead. But beware the risks.

New ways to pay for college

Experts respond to real-life scenarios of people struggling to afford higher education.

How technology is reshaping the advice business

Artificial intelligence, Amazon and robo-advisers are some of the topics on the minds of tech experts.

Best- and worst-performing sector funds and ETFs this year

A rising tide may lift all ships, but a bull market doesn't lift all stock sectors. Here are the best- and worst-performing sectors this year, with the top and bottom fund in each sector.

Betterment slapped with $400,000 fine from Finra

Robo-adviser cited for violating customer protection rule and not maintaining its books and records correctly.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print