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FINRA Censures and Fines Parsonex Capital Markets Over Form CRS Omissions

FINRA Censures and Fines Parsonex Capital Markets Over Form CRS Omissions. Broker-dealer, brokerage, Financial Industry Regulatory Authority, financial services, FINRA, RIA
FINRA Censures and Fines Parsonex Capital Markets Over Form CRS Omissions. Broker-dealer, brokerage, Financial Industry R

Parsonex Capital Markets LLC has consented to a fine and censure from The Financial Industry Regulatory Authority after they omitted required information from the firm’s customer relationship summary (Form CRS).

Most significantly, FINRA says that from June 30, 2020, to February 9, 2023, the firm failed to disclose on its Form CRS that a number of its financial professionals had legal or disciplinary history. Additionally, since April 13, 2023, the firm had failed to update its Form CRS to disclose that its control affiliate had legal or disciplinary history.

Form CRS contains the heading, “Do you or your financial professionals have legal or disciplinary history?” The instructions to Form CRS state that a firm must respond “Yes” if it or any of its financial professionals discloses, or is required to disclose, legal or disciplinary history on specified regulatory disclosure forms, such as Forms BD, U4, U5, and U6. Legal or disciplinary history that is required to be disclosed on those forms includes criminal history, regulatory actions, civil judicial actions, and specified financial events (e.g., bankruptcies, judgments, and liens).

Because a firm must disclose on Form BD not only its own legal or disciplinary history, but also that of its “control affiliates,” a firm must respond “Yes” to the Form CRS question concerning legal or disciplinary history if any of its control affiliates has legal or disciplinary history.

Despite this, FINRA says that between June 30, 2020, and February 9, 2023, Parsonex Capital Markets failed to respond “Yes” to the Form CRS question concerning legal or disciplinary history, even though four of its registered representatives in fact had prior legal or disciplinary history. Without addressing those representatives’ prior legal or disciplinary history, the firm responded, “No, the Firm does not have a disciplinary history.”

At the time Parsonex Capital Markets filed its initial Form CRS on June 29, 2020, Form U4 or U6 filings for two of the firm’s registered representatives, including the firm’s chief financial officer, disclosed prior legal or disciplinary history. And Form U4 or U5 filings for two additional registered representatives, who became associated with the firm in June 2021 and April 2022, likewise disclosed prior legal or disciplinary history. All of those filings, and the disclosures contained in the filings, were reflected in FINRA’s Central Registration Depository (CRD) and in BrokerCheck and were made by or were available to the firm.

On Feb. 9, 2023, the firm updated its Form CRS to respond, “Yes, while the Firm does not have any disciplinary history some of our representatives do.”

Secondly, FINRA says that Parsonex failed, since April 13, 2023, to update its Form CRS to disclose that its control affiliate had legal or disciplinary history. On March 13, 2023, the control affiliate—an investment adviser that is registered with the U.S. Securities and Exchange Commission—entered into a cease-and-desist order with the SEC for failing to adopt and implement reasonably designed compliance policies and procedures as required under the Investment Advisers Act of 1940, and for failing to seek best execution of client securities transactions. Parsonex therefore was required to update its Form CRS by April 12, 2023—30 days after the SEC’s order. Regulatory disclosures reflecting the control affiliate’s disciplinary history were available to the firm in CRD and in BrokerCheck. The firm updated its Form BD on April 11, 2023, to disclose that its control affiliate had been the subject of a disciplinary action. Nonetheless, Parsonex Capital Markets has failed to date to update its Form CRS to disclose that the control affiliate has legal or disciplinary history.

By filing and delivering to customers a Form CRS that omitted required information and then failing to update it, FINRA says Parsonex Capital Markets willfully violated FINRA rules. As a result, FINRA issued a censure and fine of $10,000. Parsonex, without admitting or denying them, accepted and consented to FINRA’s findings.

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