SunTrust Investment Services a securities broker dealer headquartered in Atlanta Georgia has been censured and fined $50,000.00 by Financial Industry Regulatory Authority (FINRA) based upon findings that SunTrust failed to supervise the suitability of non-traditional exchange traded funds transactions in customer accounts. Letter of Acceptance Waiver and Consent No. 2018057530701 (May 1, 2020).
According to the AWC, securities broker dealers including SunTrust had been advised by FINRA that it was not normally appropriate for customers to invest in non-traditional exchange traded funds if they planned to hold the alternative investments for longer than one trading session. SunTrust was also informed about the significance of establishing adequate supervision of stockbrokers who may be providing customers with advice regarding non-traditional exchanged funds. FINRA also emphasized the role of appropriate suitability reviews and proper guidance and trainings for stockbrokers concerning the risks of those investments.
The AWC stated that SunTrust failed to develop adequate supervision systems or written supervisory procedures relating to the suitability of non-traditional exchange traded funds. There was inadequate guidance or procedures used by SunTrust to address the risks of these alternative investments and their special features.
The AWC indicated that were no exception reports, alerts or other systems used by SunTrust to review the period of time in which customers held non-traditional exchange traded funds. FINRA revealed that there was no proof of anyone at SunTrust executing a suitability analysis that was customer-specific in circumstances where a SunTrust customer held a non-traditional exchange traded fund position for more than one trading period.
According to the AWC, there were also no written supervisory procedures used by SunTrust which called for a customer-specific suitability review for those customers holding non-traditional exchange traded funds for extended periods.
FINRA conveyed that SunTrust maintained a process by which its stockbrokers were supposed to complete an online course before they could recommend non-traditional exchange traded funds. This training was silent on how to monitor extended holding periods and also silent as to how extended holding periods affected suitability. FINRA determined that SunTrust’s supervisory failures led to customers holding non-traditional exchange traded funds for prolonged periods.
252 non-traditional exchange traded fund transactions were effected in 95 customer accounts by 17 SunTrust stockbrokers between January of 2015 and January of 2018. The principal value of those transactions exceeded $2,800,000.00. The AWC stated that some accounts containing these securities had substantial unrealized losses by January 1, 2018 and that SunTrust failed to address this. FINRA found that SunTrust violated FINRA Rules 2010, 3110(a) and 3110(b).
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