Capital One Investing, LLC, a broker-dealer headquartered in Seattle, Washington, was censured and fined $500,000.00 by Financial Industry Regulatory Authority (FINRA) based upon consenting to findings that the firm, inter alia, did not provide customers with required notifications pertaining to suitability determinations, and failed to supervise distributions of required notices to customers. Letter of Acceptance, Waiver and Consent, No. 2013039465901 (Nov. 28, 2016).
According to the AWC, between 2004 and 2013, suitability determinations had been made by the firm for an estimated 730,000 customers who utilized the Capital One’s online tool, PortfolioBuilder. Recommendations for exchange traded fund purchases were reportedly made by Capital One to customers pursuant to the online tool’s suitability determinations, and customers typically made purchases following the use of the tool.
The AWC stated that Capital One accumulated information concerning customers’ suitability based upon the customers’ use of the tool; however, the firm failed to create required records for customers’ accounts, which included details concerning the customers’ investment objectives, net worth, annual income, employment status, age, and other identifying information.
The AWC stated that the documents were required to be transmitted to customers in order to address situations when misunderstandings occurred between broker-dealers and customers concerning the customers’ objectives for investing and financial circumstances. Additionally, the AWC stated that the documents were required for purposes of making sure that FINRA received accurate information concerning determinations of suitability.
Consequently, the AWC stated that the firm failed to provide 730,000 customers with required thirty day notifications containing a copy of the account record for customers to be able to confirm accuracy of suitability information. Additionally, an estimated 650,000 customers did not receive thirty-six month notifications confirming information utilized by the firm in determining suitability to ensure accuracy.
The AWC further revealed that from 2004 to 2013, the firm did not have any written supervision systems and protocols pertaining to SEC Rule 17a-3(a)(17) compliance, which required thirty day and thirty-six month notices to be transmitted to customers. Apparently, from May of 2014 onward, the firm’s written supervision systems and protocols did not include mandatory reviews of suitability information provided to customers for determinations of accuracy.
Accordingly, FINRA found that the firm’s conduct was violative of FINRA Rules 2010 and 4511, NASD Rules 2110 and 3110, as well as SEC Rule 17a-3(a)(17)(i). The firm’s supervisory failures were found by FINRA to be violative of FINRA Rules 2010 and 3110, as well as NASD Rules 2110 and 3010.
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