Finra fines LPL $2.75 million for reporting failures

The regulator cited wrong interpretations of Finra rules and flawed internal guidance as reasons for not making proper reports that would help safeguard investors

Oct 30, 2018 @ 2:55 pm

By Sarah Min

The Financial Industry Regulatory Authority Inc. fined LPL Financial $2.75 million Tuesday for failing to list dozens of customer complaints against its brokers and for not filing hundreds of suspicious activity reports in its anti-money laundering program.

For more than three years, LPL failed to update brokers' registration or termination forms to reflect dozens of reportable customer complaints, according to Finra. LPL wrongly interpreted a Finra rule that a claim had to contain compensatory damages of $5,000 or more to mean that the customer must explicitly request compensation, even when the complaint, when taken in its entirety, made this clear, Finra said.

At the same time, LPL failed to investigate unauthorized attempts to gain access to its electronic systems. According to Finra, LPL failed to file more than 400 suspicious activity reports, largely as a result of flawed internal guidance on reporting requirements. LPL's AML employees used a "fraud case chart" that provided inaccurate guidelines to report when third parties attempt to compromise clients' email or brokerage accounts.

"This case highlights Finra's persistent focus on ensuring that firms file with the government and with Finra information critical to the protection of investors and the public," said Susan Schroeder, executive vice president for Finra's Department of Enforcement. "Forms U4 and U5 in particular serve as an essential source of information to the investing public in deciding whether to entrust their assets with a broker."

Finra has been cracking down on money laundering in recent years, imposing larger "supersized" fines of $1 million or more in enforcement actions, according to the law firm Eversheds Sutherland. Over the past two years, firms have paid fines ranging from $1.3 million to $17 million for AML failures. The largest single fine from the regulator in the first half of this year was $5.3 million, and that was for AML compliance failures.

(More: Finra fines up, but restitutions plummet in first half of 2018)

When considering LPL's fine amount, Finra considered LPL's "extraordinary cooperation" with the undertaking. LPL promptly reported filings and initiated its own investigation into its own suspicious activity report filings, Finra said. LPL, which agreed to the settlement, neither confirmed nor denied Finra's charges.

"We've made significant investments to enhance our AML program at LPL," said Jeff Mochal, an LPL spokesman. "We're pleased that Finra noted our 'extraordinary cooperation' in identifying, self-reporting, investigating and remediating these issues thoroughly and promptly."

(More: Regulatory outlook for 2019 shaping up to be more positive)


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