Wells Fargo Clearing Services and Wells Fargo Advisor Financial Network have settled with the Financial sector regulatory authority on their alleged failure to oversee early mutual fund rollovers.
In a letter of acceptance, waiver and consent signed by both Wells fargo entities in November, they agreed to pay nearly $ 2.5 million in restitution and a fine of $ 650,000. Finra sealed the deal by signing it on Monday.
The regulations are the latest result of a long-term focused review, or sweep, of early ITU renewals. Since 2019, Finra has identified similar oversight failures in six companies: Wells Fargo, Morgan stanley, Merrill Lynch, Stifel, Nicolas et Cie., Oppenheimer & Co. and Citi.
“These cases should serve as a clear reminder to member companies to ensure that their surveillance systems are reasonably designed to oversee the sales of any products they offer,” Jessica hopper, head of the execution department of Finra, said in a statement.
“Companies should be particularly vigilant in identifying representatives who recommend trading strategies intended to generate commissions for the representative regardless of the intended use of the product,” she added.
An ITU is an SEC-registered investment company that offers units or shares in a fixed portfolio of securities in a single public offering. ITUs usually end on a specific due date, which is often after 15 or 24 months. At that point, the underlying securities are sold and the resulting proceeds are paid to the investor, according to Finra.
ITU’s portfolios are not actively managed between inception and maturity, but selling a client’s ITU before its expiration date incurs additional costs for the client, according to the autoregulator.
Finra states that, from July 2013 to June 2018, Wells Fargo Clearing Services and Wells Fargo FiNet, the communications firm’s independent advisor channel, “failed to establish and maintain a monitoring system reasonably designed to provide compliance ”with its rules.
As part of the settlement, Wells Fargo Clearing Services agreed to censorship, a fine of $ 550,000 and $ 2.1 million in restitution, plus interest. Wells Fargo FiNet agreed to censorship, a fine of $ 100,000 and just over $ 375,000 in restitution, plus interest.
La Finra acknowledged Wells Fargo’s “extraordinary cooperation” in resolving the issue.
The autoregulator rollover scan began in September 2016 after discovering that Morgan Stanley had not reasonably overseen ITU’s early rollovers in thousands of client accounts. In 2017, Morgan Stanley agreed to a settlement that required it to pay a fine of $ 3.25 million and restitution of nearly $ 9.8 million on 3,020 accounts receivable.
In June 2021, Finra ordered Merrill to pay nearly $ 12 million in damages and fines for alleged misconduct in ITU transactions.
In May 2020, Stifel accepted to pay more than $ 3.6 million in damages and fines to customers for alleged failures in the processing of ITUs by the company.
In December 2019, Finra ordered Oppenheimer to pay $ 4.6 million in restitution and fines for the first ITU renewals.
In June 2019, Citigroup agreed to censorship and pay a fine of $ 225,000 and $ 152,488.59 in restitution for the alleged failures of the ITU sale.
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