FINRA Orders Pershing to Pay $3M Fine for Customer Protection Rule Violations

The Financial Industry Regulatory Authority Inc. says that Pershing, a Bank of New York Mellon Corp. (BK) unit, must pay $3 million for violations involving the Customer Protection Rule. According to the self-regulatory organization, for about nine months between ’10 and ’11, the clearing firm did not put aside the money needed for a reserve account, per FINRA’s deposit requirements.

The SRO said that deficiencies, from $4 million to $220 million, came from Pershing’s “misinterpretation” of aspects of the rule, as well as inadequate supervision over the way the firm calculated what needed to be put in reserve. Also, over a certain time period, Pershing did not promptly get or keep up physical possession or control of certain customers’ margin securities. This resulted in nearly four dozen new control or possession deficits, while significantly raising the number of existing control or possession deficits.

The Customer Protection Rule mandates that brokerage firms maintain custody of customer cash and securities in order to comply with the following requirements: keep a cash reserve or qualified securities in a bank account that has at least the equivalent value of the net cash the broker-dealer owes customers, as well as obtain and keep up control or physical possession over customers’ excess and fully paid margin securities.

FINRA enforcement chief Brad Bennett said that because of Pershing’s purported failure to set up systems to “vet procedural changes” that could impact certain types of positions, customers’ assets were placed at risk. The SRO discovered the alleged deficiencies while conducting an examination on site in 2011. The firm has since improved its controls. While Pershing agreed to the sanctions it has not denied or admitted to the findings.

Contact our securities lawyers today if you suspect that your investment losses are because of securities fraud or related negligence.

FINRA Fines Pershing LLC $3 Million for Customer Protection Rule Violations and Supervisory Failures, FINRA, December 29, 2014


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