Why would Goldman Sachs pay FINRA $700K?

Has the SEC gone soft?
February 28, 2018
March 14, 2018

It may be chump change to Goldman Sachs, but not sanctions and a $700,000 fine is not exactly small change to us! What about you?

The Financial Industry Regulatory Authority (FINRA) censured Goldman Sachs & Co., LLC and hit the firm with a $700,000 fine for problematic policies, systems, and procedures (including written procedures) related to the delivery of exchange-traded funds (ETFs) prospectuses. On top of that smack down, FINRA also is requiring the firm submit a certification that its policies, systems, and procedures (including written procedures) and training, in connection with its prime services clearing business, are reasonably designed to achieve compliance with applicable rules.

Is poor oversight a size issue?

It shouldn’t be, but…Goldman did consent to the entry of FINRA’s findings that it failed to deliver numerous ETFs’ prospectuses that it intended to deliver due to design flaws in its prospectus-delivery system. The flaws went undetected for over five years.

According to FINRA, the firm cleared over 100 million ETF purchases for its own customers, primarily institutional market participants, and for customers of over 100 introducing brokers.  Its system was designed to deliver prospectuses for all first-time ETF purchases regardless of the availability of any exemptions from prospectus delivery. However, due to the design flaws, the prospectuses were never delivered. FINRA also determined that the prospectus-delivery system was inadequately tested and no one noticed the issues.

How much do inadequate policies and procedures cost?

Lot$! Goldman’s $700K hit is not the largest fines issued to firms failing to pay attention to compliance. In addition, the firm failed to establish, maintain, and enforce supervisory control policies and procedures that adequately tested and verified that its supervisory procedures concerning ETF prospectus delivery were reasonably designed to achieve compliance with applicable securities laws and regulations. Instead, it emailed its third-party vendor seeking confirmation for the mailing of prospectuses for a small sample of trades that occurred the prior business day. However, in this instance, the vendor misinterpreted the firm’s emails thinking they were instructions to simply send prospectuses for the sampled transactions and confirm their delivery. And although a daily production log of the prospectuses to be delivered, and images of mailing labels for those prospectuses were compiled, no one tracked whether the prospectuses actually mailed.

As a consequence of Goldman’s failure to establish, maintain and enforce a supervisory system and written supervisory procedures in connection with ETF prospectus delivery that were reasonably compliant with Section S(b)(2) of the Securities Act of 1933 (the “Securities Act”), Goldman violated NASO Rules 3010(a) and (b) and 2110 and FINRA Rule 2010. And in failing o establish, maintain, and enforce supervisory control policies, Goldman also failed to comply with applicable securities laws and regulations, specifically NASO Rules 3012 and 2110 and FINRA rule 2010.

How important is investing in compliance…really?

Well…do YOU have $700K to throw away. That’s a question only you can answer. But that’s also where Patrina can help. We’ve built a business on helping organizations stay on the “straight and narrow” efficiently and cost-effectively. So, let’s talk. Call 212-233-1155 to ask about Patrina’s cost-effective and comprehensive, 8-module compliance solution, and compliant data capture, file storage, and records archiving specifically designed for the financial services community. Be smart. Be covered.

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