The Financial Industry Regulatory Authority imposed penalties on Wells Fargo Clearing Services for violations involving transactions in municipal securities, Financial Advisor reports.
The firm, a broker-dealer subsidiary of Wells Fargo, agreed to pay a $1.25 million fine and accept a censure under the settlement reached with FINRA.
It was alleged that during a seven-year period from November 2016 to November 2023, Wells Fargo Clearing Services failed to close out hundreds of inter-dealer municipal bond transactions on time and did not promptly obtain possession or control of customer securities tied to those trades. Overall, the clearing service failed to properly resolve 493 municipal securities trades involving $14.4 million in municipal securities.
FINRA determined that Wells Fargo Clearing Services failed to timely cancel or close out 209 failed inter-dealer transactions in municipal securities totaling approximately $6.5 million and failed to timely deliver I06 municipal securities totaling approximately $3.8 million, violating MSRB Rule G-12(h).
During the same period, Wells Fargo failed to promptly obtain physical possession or control of 178 short positions totaling approximately $4.1 million resulting from failures to receive municipal securities, violating Securities Exchange Act of 1934 Section 15(c)(3), Exchange Act Rule 15c3-3(d)(2), and FINRA Rule 2010.
Finally, during the same period, Wells Fargo failed to establish and maintain a supervisory system reasonably designed to achieve compliance with municipal close-out rules and customer protection requirements. Wells Fargo’s written procedures did not provide adequate guidance on available close-out options or effectively track whether failed inter-dealer transactions were being resolved on time. As a result, the firm violated MSRB Rule G-27.
FINRA noted in its settlement letter that broker-dealers are required to cancel or close out failed inter-dealer municipal securities transactions within a maximum of 20 calendar days after settlement, including any permitted extensions. The rule is designed to reduce systemic risk and prevent unresolved trades from lingering on firms’ books. About half of Wells Fargo’s failed trades remained unresolved for more than 50 days.
Wells Fargo accepted and consented to the findings without admitting or denying them.
“We are pleased to resolve this matter,” said Meghan McDonald, Wells Fargo’s lead communications consultant in wealth and investments, adding that the firm updated the relevant supervisory procedures when the deficiencies were discovered.
The attorneys at Hyman Cotter PC include former senior attorneys at the SEC whose legal experience and industry knowledge make them uniquely qualified to provide counsel on securities regulatory, compliance and enforcement matters. Our attorneys fully understand the regulatory scrutiny financial professionals and their firms face from the various regulators that oversee the financial services industry. If your firm is facing an investigation from a regulatory agency, please contact Hyman Cotter PC at 312-291-4600 or through our online contact form.
