The Financial Industry Regulatory Authority (FINRA) has fined Merrill Lynch, Pierce, Fenner & Smith $500,000 for failing to file hundreds of required reports, including customer complaints, arbitration claims, and related U4 and U5 filings that led to widespread deficiencies.
The watchdog claims that the breaches remained undiscovered for many years, which might have hindered investors’ ability to assess the background of certain brokers through BrokerCheck, FINRA’s public disclosure program.
By not submitting the aforesaid documents, they may have compromised firms’ ability to conduct background checks when making hiring decisions, reduced the ability of securities regulators to review brokers’ transfer applications and hindered FINRA from promptly investigating certain disclosure items, the US agency said.
FINRA’s executive vice president and chief of Enforcement Brad Bennett said, "Firms that fail to file important regulatory information in a timely manner can compromise the integrity of CRD and BrokerCheck."
"In this instance, Merrill Lynch failed to report critical information that regulators and investors rely upon. Without timely and accurate reporting by firms, investors only have part of the picture when researching and making decisions about their brokers."
According to the rules of FINRA, when a securities firm hires a broker, it must ensure that information on the broker’s registration application (Form U4) is updated and kept current on the Central Registration Depository (CRD) system.
In its course of inspection in the Merrill Lynch case, FINRA found that from 2007 to 2011, Merrill Lynch failed to file or timely file more than 650 required reports, including customer complaints and customer settlements.
From 2005 to 2011, Merrill Lynch failed to report or timely report customer complaints, and related Forms U4 and Forms U5 between 23% and 63% of the time.
Merrill has neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.