Large BD Fined $3 Million for Faulty Reserve Calculations
FINRA fined a large clearing firm $3 Million for miscalculating its reserve formula, resulting in reserve deficiencies ranging from $4 Million to $220 Million over an eight-month period. FINRA alleges that the firm included certain debit items even though they did not satisfy Rule 15c3-3’s documentation requirements to include the items. FINRA also faults the firm’s supervisory system and procedures for failing to implement a mechanism that reviewed procedural changes that led to the miscalculations.
OUR TAKE: This action follows several recent regulatory trends: (1) enforcement actions and large fines even though there is no customer or investor impact; (2) actions involving violations of highly technical and subjective regulatory requirements; (3) large fines for violations of net capital calculations and reserve requirements; and (4) faulting compliance systems for regulatory failures without an examination of whether such systems were reasonably designed.