Merrill Lynch FINRA censure resulted in a $175,000 fine after the firm failed to give required municipal bond trade disclosures to self-directed clients.
FINRA censured Merrill Lynch, Pierce, Fenner & Smith Incorporated over a lapse that lasted from January 2021 to September 2023. During that period, the firm executed 4,181 municipal securities purchases across 1,072 self-directed accounts. Those trades totaled about $87 million in principal.
According to the findings, the firm did not disclose a non-de minimis market discount at the time of trade. As a result, clients were not told that the accreted discount would be taxed as ordinary income rather than at the capital gains rate. FINRA said that information was material and should have been given at or before the trade.
Merrill Lynch FINRA Censure Details
The case focused on the firm’s supervisory controls. FINRA said Merrill had no written procedures to make sure those disclosures reached its self-directed platform. In addition, the firm had no process to test whether it was making the disclosures at all.
Because of that, FINRA found breaches of MSRB Rule G-47 on time-of-trade disclosure and MSRB Rule G-27 on supervision. The regulator said the failures covered nearly three years.
Second FINRA Action in Two Weeks
Notably, this was the second FINRA censure of the Bank of America unit in less than a fortnight. A separate action led to a $225,000 censure over failures to report more than 1,600 customer complaints. In both matters, FINRA pointed to weaknesses in supervision.
Merrill has since sent the missing disclosures to affected clients. It also offered remediation to clients who can show the omission caused them a tax cost. Meanwhile, the firm resolved the case without admitting or denying FINRA’s findings.
You can access our other news on brokers and global market developments here.
