FINRA fines Merrill Lynch for allowing unregistered individual to act as principal of its prime brokerage

Maria Nikolova

Merrill Lynch allowed an executive with its affiliate to function as a principal in the firm’s prime brokerage business without being registered with FINRA.

Merrill Lynch, Pierce Fenner & Smith Incorporated has agreed to pay $150,000 as a part of a settlement with the United States Financial Industry Regulatory Authority (FINRA).

From April 2016 through the present (the “Relevant Period”), Merrill Lynch allowed an executive with its non-FINRA member affiliate to function as a principal in the firm’s prime brokerage business without being registered with FINRA. The individual was actively engaged in the management of Merrill Lynch’s prime brokerage business in the United States, and exercised overall managerial decision-making authority.

The individual was engaged in hiring prime brokerage employees registered with FINRA, as well as in directly supervising some of those employees. This individual was writing performance reviews for registered employees and was determining and approving compensation for registered employees. In addition, the individual was acting as a voting member of committees making business decisions for the Firm’s securities business and was presiding over weekly U.S. prime brokerage sales meetings.

Moreover, the individual was soliciting business from current and prospective clients, and personally approved the on-boarding of at least one customer.

Merrill allowed the individual to act as a principal of the Firm, but did not ensure the individual was registered with FINRA as a principal. Based on this conduct, Merrill Lynch violated NASD Rule 1021 and FINRA Rule 1220, as well as FINRA Rule 2010.

On top of the fine, Merrill Lynch also consents to the imposition of censure and accepts the following undertaking:

“Within no later than 30 days from the issuance of the Notice of Acceptance of the AWC, a registered principal and executive officer of the Firm, on behalf of Merrill Lynch, shall submit a certification that: (a) the individual referred to in the AWC is not actively engaged in the management of the Firm’s securities business, or (b) if the individual is, the individual has obtained the requisite registrations”.

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