FINRA Fines Santander $6.4M for Supervisory Failures
FINRA ordered Santander Securities to pay $6.4 million for supervisory failures related to Puerto Rican municipal bonds.
The Spain-based firm is the latest to face regulatory penalties related to Puerto Rican municipal bonds and closed-end funds. Last month, FINRA and the SEC hit UBS with $34 million in fines and sanctions.
FINRA found that between December 2012 and October 2013 the firm did not ensure its proprietary product-classification tool properly reflected market risks with Puerto Rican bonds and did not adequately supervise its customers' use of margin and concentrated positions in their accounts. Santander did not require a review or assessment of the tool and specifically did not assess the tool's Puerto Rico bond risk classifications after Moody's downgraded some of the island's bonds on Dec. 13, 2012, FINRA said.
The regulatory agency also found Santander failed to monitor possible conflicts of interest where customer orders were filled through positions held in their broker's personal brokerage account, and because of that approximately 400 such transactions totaling over $50 million took place, FINRA says.
The sanctions against Santander include $4.3 in restitution to clients who were solicited to buy Puerto Rican bonds and $2 million for supervisory failures related to sales of the bonds and Puerto Rican closed-end funds. FINRA also ordered Santander to pay $121,000 in restitution and to buy back securities sold to customers impacted by Santander's failure to supervise employee trading.
"This is a strong reminder to firms that they must focus on customers' exposure to market risks and suitability, particularly in those markets like Puerto Rico that present unique risks and challenges," said Brad Bennett, FINRA's executive vice president and chief of enforcement.
Santander neither admitted nor denied the charges, but consented to the entry of FINRA's findings.
"Santander Securities is pleased to resolve this matter and will comply with the terms of the FINRA letter. The firm has taken steps to enhance its controls in connection with the activities described in the FINRA letter," a firm spokeswoman said in an email.
Santander has 720 registered representatives, 40 of whom are based in Puerto Rico, according to FINRA.
The penalties Santander incurred are dwarfed by those that UBS faced last month. The Swiss- firm agreed to pay $34 million to settle charges by FINRA and the SEC that it failed to supervise the suitability of transactions in Puerto Rican closed-end funds as well as the actions of a former broker.
The penalties against UBS, which has 82 registered representatives in two branches on the island, included $11 million in restitution to 165 clients who suffered losses in closed-end fund positions.
Like Santander, UBS neither admitted nor denied the charges, but consented to the entry of FINRA's findings.
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