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FINRA Orders Merrill Lynch to Pay Nearly $1.5 Million in Restitution for Supervisory Failures

Merrill Lynch, Pierce, Fenner & Smith Incorporated – the global investment banking and multiservice brokerage firm and subsidiary of Bank of America Corporation – has agreed to pay $1.5 million in restitution as part of a settlement with the Financial Industry Regulatory Authority.

According to FINRA, from January 2018 to June 2022, Merrill Lynch failed to establish and maintain a supervisory system and written procedures to ensure that its registered representatives’ recommendations were suitable for their clients’ best interests. As a result of these supervisory failures, customers holding more than 2,000 accounts paid nearly $1.5 million in avoidable fees.

The issue arose from Merrill Lynch’s practice of offering a 12-month waiver of advisory fees on certain new-issue products if purchased in an advisory account. However, some registered representatives recommended that clients purchase these products in a brokerage account and then transfer them to an advisory account, incurring unnecessary fees.

FINRA stated that the firm failed to monitor for, detect, or prevent these types of potentially unsuitable recommendations and violated FINRA Rule 3110, which requires members “to establish and maintain a system to supervise the activities of each associated person that is reasonably designed to achieve compliance with applicable securities laws and regulations” and Reg BI’s Compliance Obligation, which requires broker-dealers to maintain and enforce written policies and procedures, among other rule violations.

Merrill Lynch has agreed to a censure and to pay restitution of $1,486,380 plus interest. FINRA also recognized the firm for its extraordinary cooperation in the investigation, citing that Merrill Lynch conducted its own internal review, implemented measures to improve its supervisory system, established a plan to identify customers eligible for restitution, agreed to pay restitution, and provided substantial assistance to FINRA in its investigation.

Merrill Lynch is a global investment banking and multiservice brokerage firm that provides retail brokerage and wealth management services. Since January 2009, Merrill Lynch has been an indirect, wholly owned subsidiary of Bank of America Corporation with its principal place of business in New York City. It has more than 28,000 registered representatives in more than 4,000 branch offices, servicing millions of customers.

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