A registered broker-dealer has been charged by the Securities and Exchange Commission with violating Regulation Best Interest (Reg BI), Investment News reports.
The SEC announced that First Horizon Advisors, Inc. agreed to pay a $325,000 civil penalty to settle charges that it failed to maintain and enforce policies and procedures reasonably designed to achieve compliance with Reg BI. The charges relate to First Horizon’s recommendations of a type of derivative security called a structured note.
The SEC’s Reg BI establishes a “best interest” standard of conduct for broker-dealers when they make a recommendation to a retail customer of any securities transaction or investment strategy involving securities, requiring that they act in the customer’s best interest.
The SEC found that in 2021, First Horizon migrated more than 5,000 customer brokerage accounts to its system from that of a broker dealer with whom the firm had merged. But because the two systems were not entirely compatible, First Horizon did not have accurate customer information needed to ensure that structured note recommendations were in compliance with First Horizon’s Reg BI policies and procedures.
Furthermore, the SEC’s order said that the registered representatives who joined First Horizon from the merging broker-dealer did not have access to First Horizon’s exception reporting site to review structured notes transactions flagged as non-compliant, as required by Reg BI policies and procedures. The SEC’s order also finds that in 2023, the firm approved structured note recommendations without all the documentation required by its Reg BI policies and procedures.
“To help reduce the chance of retail customer harm, Reg BI requires broker-dealers to establish, maintain, and enforce written policies and procedures reasonably designed to achieve compliance with Reg BI as a whole,” said Osman Nawaz, Chief of the SEC Enforcement Division’s Complex Financial Instruments Unit. “This action underscores that broker-dealers must ensure appropriate compliance around complex financial products and that it is not enough to simply have written policies; firms must also enforce them.”
First Horizon did not admit or deny the SEC’s findings but agreed to the civil penalty as well as a cease-and-desist order and a censure.
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