Finra continued its recent push to hold broker-dealers accountable for the suitability of product sales and saying today that it had reached a settlement with Barclays Capital Inc. in which the firm would pay restitution of more than $10 million to clients for mutual fund-related suitability violations. Barclays Capital was also fined $3.75 million.
From January 2010 to June 2015, Barclays' supervisory systems were not sufficient to prevent unsuitable switching or to meet certain of the firm's obligations regarding the sale of mutual funds to retail brokerage customers, according to the Financial Industry Regulatory Authority Inc.
A mutual fund switch involves one or more mutual fund redemption transactions coupled with one or more related mutual fund purchases.
“For the relevant period, Barclays identified over 6,100 unsuitable mutual fund switches,” according to the Finra consent order, the charges of which Barclays Capital neither admitted nor denied. “The recommended switches were unsuitable because the purchased funds were equivalent to the redeemed funds or an alternative fund with no fees was available, and resulted on customer harm in the amount of approximately $8.63 million.”
Barclays Capital also failed to give appropriate breakpoint discounts for the sales of mutual funds, according to Finra. The firm, over the same time period, “failed to have a supervisory system reasonably designed to ensure that mutual fund purchases were properly aggregated so that customers were provided with available discounts.”
A Barclays spokesman, Marc Hazelton, said the firm had no comment beyond the Finra settlement.
“The proper supervision of mutual fund switching and breakpoint discounts is essential to the protection of retail mutual fund investors, and this case highlights Finra's commitment to ensuring that firms meet these obligations,” Brad Bennett, Finra executive vice president and chief of enforcement,
said in a statement.
Finra has been cracking down this year on broker-dealers for failing to give appropriate discounts for large purchases of investment products, commonly known as “breakpoint discounts” in the industry.
In October,
Finra sanctioned a dozen independent broker-dealers for failing to give clients discounts for large purchases of unit investment trusts and ordered the firms to pay fines and restitution to clients of $6.7 million.
Finra fined over the summer six IBDs a total of more than $500,000 for failing to give clients appropriate discounts on large sales of nontraded real estate investment trusts and business development companies.
