The Financial Industry Regulatory Authority recently announced that it has fined five brokerages for violations involving Regulation Best Interest and the Customer Relationship Summary known as Form CRS, reports InvestmentNews.
The Securities and Exchange Commission adopted Reg B1 to establish a “best interest” standard of conduct under which broker-dealers may not put their financial interests ahead of the interests of a retail customer when making recommendations. Every broker or dealer registered with the SEC is required to file Form CRS, a new customer or client relationship summary providing detailed information about the firm.
The five firms penalized under FINRA’s action were fined a total of $185,000. The authority determined that in some cases firms did not have proper procedures to ensure compliance with Reg B1 while others did not provide their Form CRS on a timely basis or omitted required information.
The largest fine, of $75,000, was levied against Axos Invest LLC for a Form CRS violation. FINRA found that the firm failed to report that an affiliate and two of its representatives had prior legal and disciplinary histories. It was reported that Axos falsely responded “No” to a question concerning legal or disciplinary history.
Fines of $35,000 each were imposed against DMK Advisor Group Inc. Harpeth Securities, and American Wealth Management. FINRA determined that DMK’s Form CRS was due by July 30, 2020 but not delivered to some customers until October 2022. The company also went nearly two years without implementing policies and procedures to comply with Reg B1.
Harpeth went from June 30, 2020 to April 22, 2022 without having policies and procedures to comply with Reg B1, FINRA said. In addition, the firm did not have policies in place to comply with Form CRS during the same time period.
American Wealth Management was penalized for omitting required information from the firm’s Form CRS. From July 23, 2020, to March 31, 2022, the firm failed to disclose on the form that it and six of its financial professionals had legal or disciplinary history, the order states.
The fifth firm, Highlander Capital Group Inc., was fined $5,000 for a Form CRS infraction. In each case, the firms did not admit or deny the findings.
Both the SEC and FINRA have said they will be increasing their enforcement of Reg B1 violations.
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