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."


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