FINRA imposes $175k fine on Merrill Lynch

Merrill Lynch, Pierce, Fenner & Smith Incorporated has agreed to pay a $175,000 fine and accept a censure from the Financial Industry Regulatory Authority (FINRA). The settlement resolves findings that the firm failed to disclose material information to certain self-directed clients.

Between January 2021 and September 2023, the firm did not disclose non-de minimis market discounts on 4,181 purchases of municipal securities. These transactions involved a total principal value of approximately $87 million across 1,072 self-directed customer accounts.

Merrill Lynch subsequently provided the required market discount disclosures to impacted customers. It also offered compensation to those who demonstrated they incurred tax liability above the capital gains rate due to the purchases.

FINRA found that, during the same period, the firm lacked a supervisory system and written procedures reasonably designed to ensure compliance with disclosure obligations. Its procedures did not address the requirement to provide time-of-trade disclosures regarding market discounts to users of its self-directed platform.

Furthermore, the firm had no process to verify that all material information about market discounts was provided to self-directed customers at or before the time of trade. Merrill Lynch updated its written procedures in September 2023 to add the required disclosure for its self-directed platform.

The regulator determined that Merrill Lynch violated MSRB Rules G-47 and G-27.