Last month, FINRA imposed fines on five firms for inadequately supervising consolidated reports. The fines ranged from $100,000 to more than $600,000.
A consolidated report is a single document that provides information regarding most or all of a customer’s financial holdings, regardless of where the customer holds those assets. Under FINRA Regulatory Notice 10-19, these reports must be clear, accurate, and not misleading. Firms are required to supervise their creation and dissemination.
One firm recently fined, according to FINRA, had a supervisory system in place but still “failed to detect consolidated reports provided by two former representatives that contained false assets that were manually entered.” FINRA also said that the firm’s “failure to establish, maintain, and enforce adequate procedures to review manual entries in consolidated reports allowed false and inaccurate consolidated reports to be sent to customers by two former representatives on multiple occasions.”
FINRA Executive Vice President and Chief of Enforcement Brad Bennett said that FINRA would “continue to examine for this issue and sanction firms that are not supervising this function properly.” Allowing individual representatives to enter data manually and to create and send out these consolidated reports without supervision and proper disclosures puts a firm at risk for substantial fines, as demonstrated by the AWCs cited in one of FINRA’s press releases.