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Stifel Subsidiaries Settle with FINRA: Fined $2.3 Million Over NT-ETP Violations

Two subsidiaries of Stifel Financial Corp. have reached a settlement with the Financial Industry Regulatory Authority (FINRA), agreeing to pay approximately $2.3 million collectively over alleged violations related to nontraditional exchange-traded products (NT-ETPs).

Stifel Subsidiaries Settle with FINRA: Fined $2.3 Million Over NT-ETP Violations

Stifel, Nicolaus & Company and Stifel Independent Advisors (SIA) consented to be censured and will pay fines totaling $1 million and nearly $1.3 million in combined restitution, as revealed in FINRA's order issued on Monday.

According to FINRA, the firms failed to establish, maintain, and enforce supervisory systems, including written supervisory procedures (WSPs), reasonably designed to ensure compliance with suitability obligations. This follows a previous order in January 2014 where the firms were instructed to pay over $1 million for similar alleged violations.

Despite taking steps to improve their supervision of NT-ETPs in the six months after the January 2014 order, FINRA alleges that from June 2014 to March 2018, the firms' supervisory system remained inadequately designed.


Specifically, FINRA asserts that the firms' WSPs lacked sufficient guidance to identify and address potentially unsuitable NT-ETP recommendations. NT-ETPs are typically intended for short holding periods, but Stifel purportedly failed to detect and address numerous instances where customers held these products for longer durations.

Furthermore, the WSPs allegedly did not require supervisors to assess whether NT-ETP recommendations aligned with the intended holding periods outlined in the products' prospectuses.

In May 2014, the firms implemented a 30-day alert system, but it was deactivated shortly afterward due to an overwhelming number of hits, remaining inactive for approximately eight months, according to FINRA.

In August 2016, Stifel's compliance department reportedly identified the NT-ETP issues, referred to as "product misuse." Despite implementing measures such as tracking positions held for over 30 days and encouraging discussions with representatives and customers, FINRA claims that certain misconduct persisted until solicited sales of NT-ETPs were prohibited by SIA in November 2017 and Stifel Nicolaus in March 2018.

A spokesperson for Stifel declined to comment on the matter when contacted via email. Both firms agreed to settle the allegations without admitting or denying FINRA's findings.



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