A broker-dealer settled FINRA charges for deficient research report disclosures and failure to implement information barriers between the firm's investment banking and research personnel.
In a Letter of Acceptance, Waiver, and Consent, FINRA alleged that the broker-dealer violated FINRA Rules 2241 ("Research Analysts and Research Reports") and 2010 ("Standards of Commercial Honor and Principles of Trade") by publishing research reports with deficient disclosures, including inaccurate disclosures regarding investment banking relationships with companies covered by the research reports. FINRA also alleged that the firm failed to implement information barriers between the firm's investment banking and research personnel, which resulted in investment banking personnel improperly suggesting that research personnel should assist in the solicitation of investment banking clients. In addition, FINRA charged the firm with related supervisory violations under FINRA Rule 3110 ("Supervision").
To settle the charges, the broker-dealer agreed to a (i) censure, (ii) $100,000 fine, and (iii) review of its research-related supervisory procedures.
Commentary Mark Highman
This action serves as a reminder that a firm's written supervisory procedures are only as good as the processes that a firm adopts to implement those procedures. According to FINRA, the disclosure breaches arose from a failure to track the firm's investment banking activities and communicate these activities to research supervisors responsible for incorporating required disclosures into the firm's research reports. The information barrier breaches arose from a failure to block email communications between investment banking and research personnel or to ensure that compliance personnel acted as intermediaries in communications between investment banking and research personnel. In each case, while it appears that the firm's written supervisory procedures addressed these requirements, the firm failed to implement relevant processes to enforce these procedures.
Originally published July 10, 2020.
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