Five firms settled FINRA charges for failing to adequately supervise custodial accounts under the Uniform Gifts to Minors Act ("UGMA") and Uniform Transfers to Minors Act ("UTMA").
FINRA Rule 2090 ("Know Your Customer") requires member firms to: (i) use "reasonable diligence" to determine the "essential facts" concerning each customer and the authority of those acting on each customer's behalf; and (ii) implement, maintain and enforce sufficient supervisory systems and procedures to achieve compliance with Rule 2090.
According to the Letters of Acceptance, Waiver and Consent, the firms did not switch custodial authority of several UGMA and UTMA accounts to the beneficiaries when they reached the age of majority/termination. FINRA alleged that the firms did not have systems in place to track or monitor when the custodial authority should have been transferred, and continued to authorize transactions in those accounts after the beneficiaries had reached the age of majority (or termination).
Without admitting to or denying the charges, the firms agreed: (i) to pay fines totaling $1.4 million; (ii) censure; and (iii) to review their policies, systems and procedures. One of the firms received a reduced fine due to "extraordinary cooperation" with FINRA, which included: (i) reviewing its supervision of UGMA and UTMA accounts; (ii) implementing improvements to its policies and procedures related to UGMA and UTMA accounts; and (iii) providing "substantial assistance" to FINRA during the investigation.
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