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SEC charges Merrill Lynch with failing to disclose foreign exchange fees to clients

On Behalf of | Apr 18, 2023 | Financial News

The Securities and Exchange Commission has charged Merrill Lynch Wealth Management with failing to disclose foreign exchange fees to its clients, reports AdvisorHub.

The charges involve actions by the firm that took place between May 2016 and July 2020. According to the SEC’s order, Merrill Lynch offered programs to advisory clients in which they paid a fee for various investment advisory services, including foreign currency exchanges. In the client agreements and brochures, Merrill Lynch disclosed that it charged a markup or markdown on foreign currency exchanges, but did not mention an additional fee it referred to as a production credit. In most of the transactions, this credit was equal to or greater than the disclosed markup or markdown, the commission found.

A percentage of the credits were paid to Merrill Lynch financial advisors and was referred to as a commission. Overall, 15,916 transactions were affected and clients were charged over $4 million in undisclosed foreign exchange fees for transfers to or from their accounts.

“Investment advisers must ensure that they do not selectively disclose some fees but not others relating to a particular service,” said Antonia M. Apps, Director of the SEC’s New York Regional Office. “While Merrill Lynch disclosed the markups or markdowns charged on foreign currency exchanges, thousands of clients were left in the dark as to an often larger fee charged on these transactions and were charged millions of dollars in undisclosed fees.”

The SEC found that Merrill Lynch failed to implement policies and procedures reasonably designed to prevent its disclosures about the foreign exchange fees from being misleading.

Merrill Lynch consented to the entry of the SEC’s order finding that it violated Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and related rules. Merrill Lynch did not admit or deny the charges, but agreed to a cease-and-desist order, a censure, and to pay disgorgement of approximately $4.1 million, prejudgment interest of $760,000, and a civil penalty of $4.8 million. Merrill Lynch agreed to distribute funds to clients who were affected.

At Lewitas Hyman, our attorneys fully understand the regulatory scrutiny financial professionals and their firms face from the various regulators that oversee the financial services industry. We have decades of experience representing clients with respect to examinations, investigations and enforcement proceedings initiated by the SEC, FINRA, state securities regulatory agencies and other self-regulatory organizations. If your firm is facing an investigation from a regulatory agency, please contact Lewitas Hyman at (888) 655-6002 or through our online contact form.

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