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Tuesday, August 9, 2016

FINRA Fines Cetera $75,000 For Failure to Meet Notice Requirements

What customer account record requirements must broker/dealers comply with under current securities law?

FINRA recently fined Cetera Investment Services $75,000 for allegedly failing to notify clients of changes to their account records, as required by current securities law.  Between October 2008 and November 2013, close to 60,000 notifications about changes to client account records, including the names, addresses, and investment objectives of accounts, were not sent to the appropriate customers. 

Under current securities law, investment firms must create and maintain an account record for each customer and notify them of any changes.  Apparently, Cetera received some complaints in 2008 from former customers who said they were still receiving notices.  Cetera used a computer code to stop the notices from going out to former customers, but it inadvertently prevented some current customers from receiving necessary notices as well. The error went undetected as Cetera did not have policies in place to supervise the handling of such notices. 

Customer Account Records

The Securities and Exchange Commission (SEC) adopted several amendments concerning records that must be kept by brokers/dealers.  Under the law, brokers/dealers must create an account record for each customer with basic information, such as the customer’s name, address, date of birth, tax identification number, employment status, annual income, net worth, and the account’s investment objectives.  The following events require the investment firm to provide the account record information to customers:

  • The opening of a new account—within 30 days of the account’s opening, the broker/dealer must provide the customer with a copy of the account information;
  • Periodic updating of the account—the broker/dealer must mail a copy of the account record information at least every 36 months; and
  • A change in the account’s investment objectives, address, or name—the broker/dealer must provide the customer with a copy of the account information within 30 days of changes made to the account.

The New York law firm of Lehman & Eilen LLP has over 20 years of experience serving as legal counsel to the securities industry. Our attorneys zealously assist broker/dealers with regulatory and compliance issues or investigations.  Call us today at (516) 222-0888 to schedule your consultation.






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