The US Financial Industry Regulatory Authority (FINRA) has censured and fined Barclays Capital more than $10m to settle claims over suitability violations related to an array of mutual fund transactions including mutual fund switches.
Under the settlement, Barclays Capital will pay a $3.75m fine and refund its customers more than $10m to settle allegations that the firm failed to properly supervise the sale of mutual funds.
Moreover, Barclays failed to provide applicable breakpoint discounts to certain customers.
The regulator said between January 2010 and June 2015, Barclays supervisory procedures failed to prevent unsuitable switching or meet the firm’s obligations related to the sale of mutual funds to retail brokerage customers.
FINRA found that the Barclays supervision procedures incorrectly flagged mutual fund switch only when three separate transactions occurred during a set time frame.
Barclays also failed to act on thousands of automated alerts for potentially unsuitable transactions, excluded transactions from review for suitability and failed to send disclosure letters to customers about the transaction costs.
Barclays was responsible for over 6,100 unsuitable mutual fund switches during the five-year period that resulted in $8.63m in customer losses.
During the same five-year period, the firm failed to provide applicable breakpoint discounts to certain customers and also failed to provide eligible customers discounts in 98 Class A share mutual fund transactions.
According to FINRA, the firm could not provide adequate guidance to supervisors to ensure that mutual fund transactions for its retail brokerage customers were suitable based upon customer investment objectives, risk tolerance and account holdings.
A six-month look back review found that 1,723 or 39% of mutual fund transactions were unsuitable, with 343 customers experiencing over $800,000 of customer losses.
FINRA executive vice president and chief of enforcement Brad Bennett said: "The proper supervision of mutual fund switching and breakpoint discounts is essential to the protection of retail mutual fund investors, and this case highlights FINRA’s commitment to ensuring that firms meet these obligations."