NASD Fines Citizens Bank Affiliate, CCO Investment Services Corp., $850,000 For Supervisory, Recordkeeping, Telemarketing, Other Violations
Washington, D.C. — NASD announced today that it has fined CCO Investment Services Corp., a wholly-owned subsidiary of Citizens Bank of Rhode Island, a total of $850,000 for failing to establish, maintain and enforce a reasonably designed supervisory system and written procedures relating to a series of issues - including customer suitability reviews, telemarketing compliance, internal inspections, review of written correspondence, registration of offices, and review and approval of 529 Plan business.
NASD found that CCO Investment Services also failed to maintain, among other things, business-related email and records of compensation given to its brokers by issuers of variable contracts or mutual funds.
In addition to the fine, NASD ordered CCO Investment Services to review its supervisory system and procedures concerning the preservation of electronic communications, customer suitability reviews, telemarketing, internal inspections, pre-registration Central Registration Depository (Web CRD) searches, review of written correspondence, registration of offices, and review of customer fund-direct 529 Plan business for compliance with NASD rules and federal securities laws and regulations. The firm was also ordered to undertake a review of the resources it devotes to compliance, assess the adequacy of such resource allocations, and make written recommendations concerning its resource needs in order to comply with the laws, regulations and rules concerning those areas.
"Like any securities firm, bank-affiliated broker-dealers must have adequate supervisory systems and controls for ensuring compliance with regulatory requirements," said James S. Shorris, NASD Executive Vice President and Head of Enforcement. "This bank-affiliated firm missed the mark with regard to several important requirements, including some that impacted retirees - an especially vulnerable group for whom NASD rules, the federal securities laws, and the telemarketing laws provide valuable protections."
NASD found that from October 2003 through March 2005, CCO Investment Services' suitability reviews of variable annuity contract sales were not reasonably designed to prevent and detect sales practice violations. For example, although the firm utilized surveillance reports and its operations personnel reviewed variable annuity applications before the transactions were completed, it inconsistently provided for reasonable follow-up and review to ensure that noted exceptions were adequately addressed. Moreover, although the firm had some policies related to variable annuity sales to elderly clients, the firm failed to provide for reasonable follow-up and review to ensure that those policies were implemented for these clients. To the extent that the firm had customer suitability review procedures, such as mandating the use of customer financial profile forms, it did not consistently enforce those procedures. As a result, customer information that could have assisted registered persons and the firm in assessing suitability was not always available.
NASD also found several violations relating to the firm's telemarketing efforts. Throughout the relevant period, both CCO Investment Services registered representatives and affiliated bank employees made telephone calls to prospective customers during "call nights." The firm required affiliated bank employees, who were not registered representatives, to use pre-approved scripts and not to discuss specific financial products with customers. But the firm had no supervisory system or written procedures for monitoring compliance with its supervisory procedures in this area. The firm had no reasonable way of even tracking the occurrence of call nights or otherwise monitoring compliance with its procedures. Moreover, during the relevant period, the firm failed to ensure that bank customers called had not registered on the Federal Trade Commission's national Do-Not-Call registry.
In addition, NASD found that the firm's supervisory system and written procedures were not reasonably designed to ensure that searches of the registration records of prospective new hires on Web CRD were performed with the permission of those individuals. During the relevant period, CCO certified to Web CRD that it had obtained the required written consents for its pre-registration searches, but for 239 of those searches the firm had failed to obtain the required consent or lacked the necessary documentation.
In concluding this settlement, CCO neither admitted nor denied the charges, but consented to the entry of NASD's findings.
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