A fine of more than $13.75 million was levied on Barclays Capital Inc., a unit of London-based Barclays PLC BCS by the Financial Industry Regulatory Authority (“FINRA”) for negligently permitting retail brokerage customers to carry out over 6,100 unsuitable mutual fund switches over a five-year period and failing to provide applicable breakpoint discounts to certain customers.
Barclays will have to shell out more than $10 million in restitution, including interest, to the affected customers for mutual fund-related suitability violations and a $3.75 million fine. The company did not admit or deny wrongdoing in agreeing to the settlement.
FINRA noted that “switching among certain fund types may be difficult to justify if the financial gain or investment objective to be achieved by the switch is undermined by the transaction fees associated with the switch.”
From January 2010 through June 2015, the U.S. regulator found insufficient supervisory systems at Barclays Wealth and Investment Management unit, which was sold to St. Louis-based Stifel Financial Corp. SF in June this year. The supervisory systems were inadequate to prevent several customers from swapping mutual funds even though costs related to switching overshadowed the benefits.
Barclays failed to act on thousands of automated alerts for potentially unsuitable transactions, excluded transactions from review for suitability and failed to ensure that disclosure letters were sent to customers regarding the transaction costs. This resulted in customers losing $8.63 million.
Moreover, as per FINRA’s findings, Barclays failed to provide adequate guidance to supervisors to ensure that mutual fund transactions for its retail brokerage customers were suitable based upon customer investment objectives, risk tolerance and account holdings. During March to August 2014, 1,723, or 39 percent of mutual fund transactions were found to be unsuitable, with 343 customers experiencing financial harm totaling more than $800,000, including realized losses.
During the same period, Barclays also failed to provide breakpoint discounts to eligible customers and lower front-end sales charges on 98 Class A share mutual fund transactions.
Brad Bennett, FINRA’s Executive Vice President and Chief of Enforcement said, “The proper supervision of mutual fund switching and breakpoint discounts is essential to the protection of retail mutual fund investors, and this case highlights FINRA’s commitment to ensuring that firms meet these obligations.”
Currently, Barclays holds a Zacks Rank #2 (Buy). A couple of similar-ranked foreign banks are Mizuho Financial Group, Inc. MFG and National Australia Bank Limited NABZY.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment