The Financial Industry Regulatory Authority announced that it has fined 25 broker-dealers a total of US$2,145,000 for failures related to their completion of FINRA’s self-assessment of mutual fund breakpoint discount compliance.

The self-assessment required firms that sold front-end load mutual funds to review their compliance in providing breakpoint discounts to customers during 2001 and 2002 and report those results to FINRA. Breakpoint discounts are volume discounts applicable to front-end load mutual funds.

The required self-assessment followed findings by NASD, the NYSE and the Securities and Exchange Commission that nearly one in three mutual fund transactions that appeared eligible for a breakpoint discount did not receive one.

The findings made in today’s settlements result from FINRA’s review of firms’ compliance with the self-assessment requirements. The violations include failing to accurately report information; failing to send timely notices and responses to customers concerning the availability of breakpoint discounts; failing to provide timely refunds for missed breakpoints to customers; and failing to correctly calculate such refunds. In addition, FINRA found that three firms failed to deliver breakpoint discounts during a later review period and continued to fail to have reasonable written supervisory procedures in place to assure that appropriate breakpoint discounts would be delivered to their customers during that later period.

The fines ranged from just US$5,000 to US$500,000. All 25 firms settled these cases without admitting or denying the findings, but consented to the entry of FINRA’s findings.

“FINRA is hindered in carrying out its regulatory mission when firms fail to adequately self-assess their conduct and report the results accurately and in a timely manner,” said Susan Merrill, FINRA executive vice president and chief of enforcement. “Today’s settlements are a clear message that when firms are required to perform self-assessments, FINRA demands that they be diligent and fully compliant.”

IE