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From Securities Regulation Daily, December 29, 2015

Barclays swatted by FINRA over mutual fund switches

By John M. Jascob, J.D., LL.M.

FINRA has ordered Barclays Capital, Inc. to pay more than $10 million in restitution and a $3.75 million penalty for unsuitable mutual fund sales. FINRA found that Barclays’ supervisory systems failed to act on thousands of automated alerts for potentially unsuitable transactions, resulting in more than 6,000 unsuitable mutual fund switches that caused customer harm of approximately $8.6 million from January 2010 through June 2015.

Without admitting or denying the charges, Barclays consented to the entry of findings that the broker-dealer had incorrectly defined a mutual fund switch in its supervisory procedures to require three separate transactions within a certain time frame. Although Barclays’ automated system generated alerts that correctly identified thousands of potential mutual fund switches, supervisors closed out the alerts and excluded transactions from review based upon the incorrect definition. Consequently, Barclays did not ensure that disclosure letters were sent to customers regarding the potential transaction costs associated with the switches.

In addition, FINRA found that Barclays’ supervisory system failed to ensure that purchases were properly aggregated so that eligible customers could be provided with breakpoint discounts. Although most of the mutual funds available on Barclays' retail platform offered breakpoint discounts, Barclays failed to provide "rights of accumulation" discounts in connection with 98 transactions in Class A mutual fund shares over a six-month look back review conducted by Barclays from March through August 2014, resulting in customer harm.

“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,” said FINRA’s Chief of Enforcement Brad Bennett in a news release.

The FINRA disciplinary action is No. 2015044544001.

Companies: Barclays Capital, Inc.

MainStory: TopStory BrokerDealers Enforcement FINRANews InvestmentCompanies

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