• Home
  • News
  • Videos
  • Directory
  • Announcements
  • Events
  • Jobs
  • Advertise
Search
Wednesday, January 20, 2021
  • Contact
  • Click here to subscribe to our Daily News Updates
The DI Wire
  • Home
  • News
  • Videos
  • Directory
  • Announcements
  • Events
  • Jobs
  • Advertise
Home News FINRA Fines Five Firms $1.4 Million for Failing to Reasonably Supervise Custodial...
  • News

FINRA Fines Five Firms $1.4 Million for Failing to Reasonably Supervise Custodial Accounts

The Financial Industry Regulatory Authority has fined five broker-dealers a total of $1.4 million for failing to properly monitor custodial accounts established under the Uniform Gifts to Minors Act (UGMA) and/or the Uniform Transfers to Minors Act (UTMA) to ensure the assets were transferred to beneficiaries once they came of age.

December 31, 2019

The Financial Industry Regulatory Authority has fined five broker-dealers a total of $1.4 million for failing to properly monitor custodial accounts established under the Uniform Gifts to Minors Act (UGMA) and/or the Uniform Transfers to Minors Act (UTMA) to ensure the assets were transferred to beneficiaries once they came of age. FINRA claims that the firms violated FINRA Rule 2090, its “know your customer” rule.

The broker-dealers include LPL Financial, J.P. Morgan Securities, Merrill Lynch, Morgan Stanley Smith Barney, and Citigroup Global Markets. Each were censured and fined $300,000, except for J.P. Morgan Securities, which was fined $200,000.

UTMA and UGMA accounts are custodial accounts that provide a way to transfer property to a minor without the need for a formal trust. While the specific requirements and features of the accounts may vary from state to state, all share certain common characteristics.

For example, in all states, in order to establish an UTMA account, the donor appoints a custodian, designates a minor beneficiary, and deposits assets into the account. Once a donor contributes assets to the account, the assets become the property of the minor beneficiary, and neither the donor nor the custodian can divest the beneficiary of the donated assets.

The custodian makes all investment decisions on the beneficiary’s behalf until the beneficiary reaches the age of majority at which point the custodian is required by state law to transfer control to the beneficiary.

According to letters of acceptance, waiver and consent issued by FINRA, the firms failed to establish procedures related to the custodians’ obligation to timely transfer control over the custodial property to the beneficiary.

FINRA claims that account custodians authorized transactions in UTMA accounts months, or even years, after the beneficiaries reached the age of majority and after the custodians had become obligated to transfer the custodial property.

“FINRA Rule 2090 requires firms to verify the authority of any person purporting to act on behalf of a customer,” said Jessica Hopper, senior vice president and acting head of FINRA’s department of enforcement. “This is essential to safeguarding customer assets—particularly in the case of UTMA and UGMA accounts, where it is essential for firms to implement supervisory systems reasonably designed to verify custodians’ authority to make investment decisions after the account beneficiaries reach the age of majority.”

In settling the matter, the five firms paid combined fines totaling $1.4 million, and agreed to review their policies, systems, and procedures to ensure that they are reasonably designed to supervise custodial accounts and to achieve compliance with FINRA Rule 2090. The firms neither admitted nor denied the charges.

Click here to visit The DI Wire directory sponsor page.

  • TAGS
  • account
  • broker
  • broker-dealer
  • custodian
  • FINRA
  • investor
Previous articleCaliber Opportunity Zone Fund Buys Arizona Office Property
Next articleFormer Ladenburg Chairman Files Lawsuit to Halt Advisor Group Merger

RELATED ARTICLESMORE FROM AUTHOR

News

Non-Traded REIT Sales Top $10.8 Billion in 2020

News

Capital Square Hires VP of Private Offerings and National Accounts Manager

News

Hines Global REIT Liquidating Trust to Sell San Antonio Retail Center for $220 Million

DIRECTORY SPOTLIGHT

?>
Contact us: info@thediwire.com
The DI Wire is the definitive news source for the illiquid alternative investment industry. The only media site dedicated exclusively to the coverage of non-traded REITs, business development companies, interval funds, closed-end funds, DSTs and the full range of private placement offerings, The DI Wire has grown to become the most trusted news source for the community of sponsors, broker-dealers and wealth advisors who provide these investment offerings to millions of American retail investors. Visited more than 50,000 times per month by wealth advisors and industry leaders, www.TheDIWire.com is an invaluable resource for anyone interested in the illiquid alternative investment industry.
  • Contact Us
© 2019 The DI Wire. All rights reserved.