NASD has recently fined USAllianz Securities US$5m for widespread deficiencies in its supervisory system and for record-keeping violations. As part of the settlement, USAllianz Securities may not open a new office for 30 days, and may not hire new registered representatives for 7 days.
NASD found that for almost 5 years, USAllianz failed to establish and maintain a reasonable supervisory system and written procedures designed to oversee the firm's registered representatives and their activities.
The resulting deficiencies included:
- Supervisory principals did not know which registered representatives they were responsible for supervising and in other instances registered representatives could not identify their supervisory principals.
- Supervisors were not qualified to carry out their supervisory responsibilities because they lacked experience, education and training; in other instances, supervisory principals inappropriately delegating their day-to-day supervisory responsibilities to other less experienced principals, often without notifying the firm.
- Inadequate staffing resources dedicated to compliance given the size and location of the firm's sales force, e.g. 2 compliance officers covering a large field sales force working in numerous offices scattered throughout the US.
- The internal office inspection program failed to provide adequate oversight, training and guidance, leading to substantial failures to properly identify deficiencies. For instance, an inspector could determine that an entire office was fully compliant in an area simply because a single registered representative did not exhibit any deficiencies in that area.
- USAllianz did not have any system in place to capture, preserve and maintain e-mail communications.
Perhaps the whole management team of this firm should attend a "re-training" program of "Management Control ABC".
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