FINRA fines firm $50,000 for disclosure failures
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The Financial Industry Regulatory Authority has fined Knoxville, Tennessee-based Home Financial Services $50,000 for its failure to disclose execution times, mark-ups, mark-downs and related supervisory failures on customer confirmations for thousands of municipal securities transactions.
Without admitting or denying the findings, Home Financial has consented to the fine and a censure.
The action arose from FINRA’s 2021 examination of the firm, during which it found that between 2018 and 2021 the firm reported its mark-up or mark-down only as a percentage of the prevailing market price on 108 customer confirmations, did not disclose mark-downs at all on 372 customer confirmations and did not disclose the execution time on 2,183 retail customer confirmations.
Similarly, between August 2016 and June 2020, Home Financial applied the non-transaction based compensation (NTBC) special condition indicator to 424 reports submitted to the MSRB’s Real Time Transaction Reporting System.
“This occurred because the vendor the firm retained to provide back office software experienced a coding error that caused the firm to automatically apply the NTBC indicator to certain transactions,” FINRA said. The NTBC indicator would mark a transaction as a non-transaction-based compensation transaction, as opposed to one in which a mark-up might appear.
For its failure to provide confirmation, Home Financial violated MSRB Rule G-15 on confirmation, clearance and other uniform practices, and for its failure to report information to RTRS, the firm violated MSRB Rule G-14 on reports of sales or purchases.
For the whole period between 2016 and 2023, the firm failed to establish and maintain a supervisory system and establish, maintain and enforce written supervisory procedures, therefore violating MSRB Rule G-27 on written supervisory procedures.
To rectify FINRA’s complaint, the firm corrected its failures, identified those affected customers and sent letters around the time the failures occurred in 2021 detailing and itemizing the previously omitted information. The firm has also implemented a fix to the software that incorrectly applied the NTBC special condition indicator and amended its written supervisory procedures in response to FINRA’s findings.
Home Financial Services declined to comment on the action.
