Fines to be Waived for Firms Notifying FINRA by April 1; Initiative Stresses Restitution and Rapid Remediation
WASHINGTON – FINRA today announced via Regulatory Notice 19-04 a self-reporting initiative to promptly compensate harmed investors and promote firms’ compliance with the rules governing the recommendation of 529 savings plans. Under the 529 Plan Share Class Initiative (529 Initiative), broker-dealers are encouraged to review their supervisory systems and procedures governing 529 plan share-class recommendations, self-report supervisory violations and provide FINRA with a plan to remediate harmed customers. In response, FINRA’s Department of Enforcement will recommend that FINRA accept a settlement that includes restitution for the impact on affected customers and a censure, but no fine.
529 plans are tax-advantaged municipal securities that are designed to encourage saving for the future educational expenses of a designated beneficiary, and shares are commonly sold in different classes with fees and expenses that vary widely from plan to plan. FINRA is concerned that some firms may not provide supervision reasonably designed to ensure that representatives recommend a 529 plan share class that is tailored to the unique circumstances and needs of each customer. Through the 529 Initiative, FINRA is encouraging firms to assess their supervisory systems and procedures governing 529 plan share-class recommendations, to identify and remediate any defects, and to compensate any investors harmed by supervisory failures.
“By focusing on restitution and rapid remediation through the 529 Initiative, FINRA is working with firms that demonstrate a commitment to fixing potential problems and making customers whole promptly,” said FINRA Executive Vice President, Department of Enforcement, Susan Schroeder. “FINRA’s highest priority in an Enforcement action is to first seek restitution to any harmed investors. We also seek to ensure that systemic deficiencies are remediated. In this initiative, we are sharing our concerns and observations about sales of 529 plans to achieve these goals as quickly and effectively as possible.”
In 2019, FINRA will continue to examine and investigate firms’ supervision of share-class recommendations to customers of 529 plans. If a firm does not self-report under the 529 Initiative but FINRA later identifies supervisory failures by that firm, any resulting disciplinary actions likely will result in the recommendation of sanctions beyond those described under the 529 Initiative.
The 529 Initiative is the latest in a series of developments from FINRA to provide firms with information to assist them in fulfilling their compliance obligations. Recently, FINRA published its Report on 2018 FINRA Examination Findings to provide a resource firms can use to improve their compliance and supervisory programs. In addition, FINRA publishes an annual Risk Monitoring and Examination Priorities Letter to highlight issues of importance to FINRA's regulatory programs.
FINRA is a not-for-profit organization dedicated to investor protection and market integrity. It regulates one critical part of the securities industry – brokerage firms doing business with the public in the United States. FINRA, overseen by the SEC, writes rules, examines for and enforces compliance with FINRA rules and federal securities laws, registers broker-dealer personnel and offers them education and training, and informs the investing public. In addition, FINRA provides surveillance and other regulatory services for equities and options markets, as well as trade reporting and other industry utilities. FINRA also administers a dispute resolution forum for investors and brokerage firms and their registered employees. For more information, visit www.finra.org.