The Financial Industry Regulatory Authority has censured and fined Merrill Lynch $150,000 for purportedly allowing an executive with its non-FINRA member affiliate to function as a principal in the firm’s prime brokerage business without being registered.
According to a letter of acceptance, waiver and consent issued by FINRA, from April 2016 through the present, the unnamed executive was “actively engaged” in the management of Merrill Lynch’s prime brokerage business in the United States and exercised overall managerial decision-making authority.
FINRA indicated that the executive hired registered brokerage employees, directly supervised registered employees, wrote performance reviews, determined and approved compensation, acted as a voting member of committees making business decisions for Merrill’s securities business, presided over weekly U.S. prime brokerage sales meetings, solicited business from current and prospective clients, and personally approved the on-boarding of at least one customer.
The regulators claim that Merrill allowed the individual to act as a principal of the firm but did not ensure the individual was registered as a principal, a violation of FINRA rules.
FINRA requires that every person engaged in the securities business of a member must be registered in the category appropriate to his or her function.
In addition to the fine and censure, a registered principal and executive officer must submit a certification that the unregistered individual referred to in the AWC letter is not actively engaged in the management of the firm’s securities business, or that they have since obtained the requisite registrations.
Merrill Lynch is a full-service broker-dealer with more than 30,000 registered individuals and more than 3,700 branches. The firm has been a FINRA member since 1937. A representative for Merrill Lynch signed the AWC letter without admitting or denying the allegations.