The Financial Industry Regulatory Authority said it has fined Pershing $1.4 million for providing inaccurate interest rate information to its clients, AdvisorHub reports.
FINRA found that over a 12-year period from 2010 to 2022, Pershing distributed more than one million account statements and trade confirmations that listed inaccurate information for variable rate securities, and also displayed inaccurate rate information on online portals for customers and registered representatives at some of the approximately 450 firms that clear through the firm.
Pershing, the Bank of New York Mellon Corp. subsidiary that provides clearing and custody services for broker-dealers and advisory firms, also agreed to a censure along with the financial penalty under the settlement.
It was determined that the firm’s security master system, which contains information relied upon when generating transaction confirmations and customer account statements, contained incorrect information for certain categories of securities with variable interest rate features.
One reason for the discrepancies is that Pershing relies on a third-party vendor to provide interest rate information for variable rate securities issued by foreign issuers, FINRA said. The vendor “failed to provide any updated interest rate information for at least 13,000 foreign variable rate securities,” the order states. “As a result, for each such security, Pershing’s security master system continued to reflect the initial interest rate, even after the security’s interest rate had changed.”
Second, from 2010 through 2022, Pershing’s security master system “contained coding that, in many instances, prevented it from listing zero percent as the interest rate for certain variable rate domestic bonds,” the order said. As a result, the systems continued to display the most recent non-zero rate, causing tens of thousands of inaccuracies in displayed rates.
During the same period, “Pershing failed to establish and maintain a supervisory system, including written supervisory procedures, reasonably designed to review the accuracy of interest rate information disseminated by the firm,” violating FINRA Rules 3110 and 2010.
FINRA said that Pershing ignored red flags about the inaccurate data, including warnings from dozens of customers who notified the firm about the matter. Pershing made corrections in those cases but “failed to investigate the cause of such inaccuracies or whether they were more widespread,’ FINRA wrote. Pershing paid the correct market yields to customers, not the inaccurate rates.
“Pershing is pleased to have resolved this matter,” a Pershing spokesperson said. “We take our regulatory and compliance responsibilities very seriously.”
After the investigation began, Pershing identified the causes of the inaccuracies, remedied them with the assistance of a consulting firm, and updated its supervisory procedures.
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