A broker-dealer agreed to settle FINRA charges for failing to establish and maintain a supervisory system reasonably designed to oversee the activities that the broker-dealer had outsourced to a vendor.
According to the Letter of Acceptance, Waiver and Consent, J.P. Morgan Securities LLC's ("JPMS") vendor was not automatically rebalancing portfolio assets in customer accounts or properly calculating customer fees. Without admitting or denying the findings, JPMS agreed to (i) certify in writing to the FINRA Department of Enforcement that it had engaged in a risk-based review of client facing third-party vendors and (ii) establish systems and policies and procedures designed to achieve compliance with FINRA and NASD rules to settle the charges. FINRA decided to not impose a monetary sanction on JPMS because it self-reported the supervisory failures and subsequently began its own examination. Additionally, FINRA stated that JPMS took significant steps to correct the inadequacies in the system and that JPMS paid restitution to affected customers.
Commentary / Kyle DeYoung
It is very welcome news that FINRA did not impose a monetary fine where the firm self-reported and voluntarily made restitution to customers. If FINRA and other regulators such as the SEC can demonstrate consistency with such forbearance, firms would be encouraged to self-report. Such self-reporting can be a significant positive to the industry where, as may be the case here, the violation is inadvertent and of a type that other firms might also commit were they not more aware of the possibility.
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