FINRA Hit Pershing With $3 Million Fine Over Customer Protection Violation

The Financial Industry Regulatory Authority (FINRA) fined Pershing $3 million last week for violating a rule requiring the firm to protect customer’s funds and securities from broker-dealer misuse.
By Joe Parsons(2147488729)
The Financial Industry Regulatory Authority (FINRA) fined Pershing $3 million last week for violating a rule requiring the firm to protect customer’s funds and securities from broker-dealer misuse.

Pershing, the clearing firm unit of BNY Mellon, was found of violating the rule between 2010 and 2011, according to a statement from the Wall Street regulatory body. It stated

Pershing failed to obtain, and later maintain, physical control of certain customers’ fully paid and excess margin securities, and during that period, the firm’s failures caused 47 new possession or control deficits. These failures exposed customer funds and securities to risk, FINRA found.

“Customers’ assets were at risk because Pershing failed to establish systems to vet procedural changes with material impact to the reserve and possession and control positions,” says Brad Bennett, executive vice president and chief of enforcement, FINRA.

The Customer Protection Rule was enforced by the U.S. Securities Exchange Commission (SEC) in order to prevent broker-dealers from using customer’s securities and cash it holds in custody to finance any part of their own business.

The fine is the latest following the collapse of MF Global in 2011 in which over $1 billion of customer money went ‘missing’ because the broker improperly used to fund its own trading and clearing operations.

In settling the matter, Pershing neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.

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