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LPL Financial Settles with FINRA for $6 Million Over Alleged Supervision Failures

Updated: Dec 29, 2023

LPL Financial, an independent broker-dealer, has agreed to a settlement with the Financial Industry Regulatory Authority (FINRA), involving a payment of over $6 million. The settlement addresses alleged supervision failures related to direct business transactions and the suitability of switch transactions. As part of the settlement, LPL will pay a $5.5 million fine and provide more than $650,000 in restitution to direct business customers.

LPL Financial Settles with FINRA for $6 Million Over Alleged Supervision Failures

FINRA's disciplinary action, published on Wednesday, outlines various violations that occurred at LPL between January 2012 and November 2022. During this period, LPL purportedly failed to adequately supervise direct business transactions. Allegations include the failure to ensure representatives reported such transactions on the trade blotter, neglecting to generate exception reports to identify potential sales practice violations, and not collecting relevant information for customers' investment profiles to make suitability determinations.


Furthermore, LPL was criticized by FINRA for sending inaccurate switch letters to customers between February 2016 and June 2020. This discrepancy was attributed to missing details in the database used by LPL's supervisory review tool. The failure to establish, maintain, and enforce a supervisory system for publicly traded securities of business development companies, leading to customer losses of approximately $74,000, was another focal point of FINRA's concerns from May 2017 to November 2022.

In response to these allegations, LPL stated, "LPL takes its compliance obligations seriously and fully cooperated with the FINRA investigation, including self-reporting certain identified issues. LPL is pleased to have resolved these matters." The firm neither admitted nor denied the FINRA findings.

FINRA noted that LPL was aware of reporting lapses regarding direct business transactions but did not take sufficient action to address the issue, allowing the firm to continue collecting fines for unreported transactions. In 2020, LPL initiated a retrospective review of its direct business transactions, uncovering mutual fund share purchases that resulted in customers paying approximately $546,000 in potentially excessive sales charges.

This settlement underscores the importance of broker-dealers maintaining robust supervision systems to ensure compliance with industry regulations, and it highlights the role of regulatory bodies like FINRA in holding financial institutions accountable for their actions.



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