In January 2020, FINRA fined LPL Financial LLC with a $6.5 million fine regarding supervisory failures. According to the Acceptance, Waiver & Consent (AWC), “LPL failed to establish and maintain a supervisory system, including written procedures, reasonably designed to achieve compliance with three regulatory obligations: record retention, fingerprinting and screening of associated persons, and supervision of consolidated reports.”
FINRA found that between January 2014 to September 2019, LPL Financial LLC “failed to establish and maintain a supervisory system, including written procedures, reasonably designed to achieve compliance with certain of its record retention obligations.” FINRA found that LPL Financial LLC failed to retain electronic records in the required format, preserve certain electronic records, and notify FINRA prior to employing electronic storage media.
According to the AWC, LPL Financial LLC’s “failure affected at least 87 million records and led to the permanent deletion of over 1.5 million customer communications maintained by a third-party data vendor. Further, LPL failed to send account notices that are required to be sent to customers at 36-month intervals for each account in which a suitability determination had been made (36-Month Letters) to over one million customers.”
Additionally, from May 2015 to the present, LPL Financial LLC “failed to establish and maintain a supervisory system reasonably designed to supervise certain consolidated reports. LPL was not aware of, and therefore failed to reasonably supervise, certain tools that its approved third-party vendors provided to the firm’s registered representatives to create and disseminate consolidated reports. In particular, the firm’s vendors created “non-finalized” consolidated reports, which, although intended for internal use, could be sent to customers. Nonetheless, the vendors did not send such reports to LPL and the firm therefore did not review them. The firm’s vendors also allowed representatives and customers to directly access consolidated reports on the vendors’’ websites, and the firm did not receive or review consolidated reports that its representatives disseminated in this manner. The firm also failed to review assets that were manually entered by representatives on consolidated reports when the representatives categorized them as “non-securities related,” even when the manually entered assets were evidently securities-related. A former registered representative of the firm exploited these supervisory deficiencies in perpetrating a Ponzi scheme through which he converted at least $1,000,000 of LPL customers’ money.”
Pursuant to FINRA Rules, member firms are responsible for supervising a broker’s activities during the time the broker is registered with the firm. Therefore, LPL Financial LLC may be liable for investment or other losses suffered by its customers.
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