The Financial Industry Regulatory Authority announced that it fined broker-dealer United First Partners (UFP) and suspended its chief compliance officer for allegedly failing to implement an adequate supervisory system designed to supervise the firm’s outside brokerage accounts.
UFP’s primary business is providing brokerage and research services to institutional customers. As part of its compliance procedures, the firm requires its chief compliance officer to review the outside brokerage account statements of the firm’s representatives. However, Dickerson did not consistently do so.
“As a result of Dickerson’s failure to reasonably monitor and review outside brokerage accounts, Respondents failed to detect and investigate trading by three employees in securities covered by the firm’s research group during the period April 2019 to June 2022,” FINRA said in its cease-and-desist order.
According to FINRA, Dickerson employed a manual process to request the outside brokerage account statements from time to time. She did not have a regular practice of tracking which statements she requested and she did not verify that she received the account statements that she requested. Although the firm’s manual compliance verifications required associated persons to disclose new outside brokerage accounts, Dickerson did not consistently review those verifications, and she failed to obtain annual compliance questionnaires from any firm representatives in 2021.
UFP and Dickerson Failed to Restrict Information Flow and Report Certain Transactions
UFP and Dickerson also allegedly engaged in additional violations, specifically in connection to FINRA Rule 5280(b). This rule provides that “a member must establish, maintain and enforce policies and procedures reasonably designed to restrict or limit the information flow between research department personnel, or other persons with knowledge of the content or timing of a research report, and trading department personnel, so as to prevent trading department personnel from utilizing non-public advance knowledge of the issuance or content of a research report for the benefit of the member or any other person.”
FINRA alleges that UFP and Dickerson did not implement procedures in line with Rule 5280(b). FINRA claims that the firm and Dickerson permitted unrestricted interactions between UFP’s research analysts and its sales and trading staff. The firm’s research analysts regularly circulated pre-publication draft research reports to sales and trading staff to obtain their input, including on the recommendations of the reports. Dickerson was copied on these communications, but she did not restrict the pre- publication review of the reports by sales and trading staff.
Additionally, FINRA Charged UFP for its failure to report TRACE-eligible transactions and failed to establish and maintain a reasonable supervisory system related to TRACE reporting. TRACE facilitates the mandatory reporting of over-the-counter transactions in certain fixed income securities and provides increased price transparency to market participants and investors.
The charges claim that UFP did not report any of its at least 223 TRACE-eligible transactions from April 2019 through April 2021. Until June 2021, the firm neither addressed its TRACE reporting obligations nor conducted any supervisory review related to TRACE reporting.
As a result of these allegations, UFP agreed to a $215,000 fine as well as an undertaking of reviewing and implementing certain supervisory policies and procedures. Dickerson agreed to a one-month job suspension and pay a fine of $5,000. Both UFP and Dickerson did not admit or deny any wrongdoing. 
Jacob Horowitz is a contributing editor at Compliance Chief 360°