FINRA Fines MML $700K for Supervisory Failures Related to Consolidated Reports
The Financial Industry Regulatory Authority has censured and fined MML Investors Services LLC, a Massachusetts-based financial services firm, $700,000 for supervisory failures related to consolidated reports.
FINRA stated that from March 2017 through April 2020, MML’s supervisory system, including written supervisory procedures, was not adequately designed to oversee the creation of consolidated reports. Specifically, FINRA found deficiencies in MML’s supervision of how its representatives created these reports. The firm did not have adequate procedures in place to supervise the entry of account information, particularly when done manually within a third-party reporting system. This lack of oversight created an environment where a registered representative was able to enter fictitious accounts, purportedly held at MML, into the system without detection.
A consolidated report combines information about a customer’s financial holdings, including assets held away from the firm, and in April 2010, FINRA issued Regulatory Notice 10-19 to remind firms of the regulatory concerns associated with consolidated reports. According to FINRA, MML’s consolidated reporting system allowed representatives to manually enter account information, and, according to the firm’s written procedures, the representative was to upload supporting documentation or otherwise explain why the manual entries were made. The firm, however, had no system in place to alert supervisors when manual entries were made nor did it require supervisors to check with representatives to ensure they were complying with the company’s written procedures.
Because of these failings, a representative was able to take advantage of the system and enter false brokerage account information into the system from November 2018 to January 2019.
FINRA stated that the matter was discovered during an investigation into the circumstances of MML’s termination of the representative creating the false reports. FINRA also reported that MML compensated those customers affected by the representative’s actions.
Without admitting or denying the claims, MML agreed to a censure and a fine of $700,000. Beginning in April 2020, MML also made improvements to its supervisory system to address the issues.
Based in Springfield, Mass., MML Investors Services LLC provides investment banking, brokerage, advisory and other financial services. The firm employs approximately 7,100 registered representatives operating from over 1,300 branches.
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