FINRA fines Wells Fargo subsidiaries $2.25M for recordkeeping violations

Wells Fargo Clearing Services and Wells Fargo Advisors Financial Network, both based in St. Louis, also agreed to a censure Monday without admitting or denying FINRA’s findings. FINRA alleged the two subsidiaries failed to store the records “related to their customer identification program—an integral part of an anti-money laundering program—in the required WORM format.”

WORM, meaning “write once, read many,” is intended to prevent alteration or destruction of the records in question.

FINRA’s record-keeping rules for broker-dealers require their customer identification program must include “risk-based procedures for verifying the identity of [their] customers, pursuant to federal anti-money laundering regulations.” Those procedures must include a description of methods used, the results of any identity verification measures, and “a description of the resolution of each substantive discrepancy discovered when verifying such information.”

FINRA also requires firms have an auditing system in place to check on compliance with the regulator’s record-keeping rules.

The alleged violations at Wells Fargo Clearing Services and Wells Fargo Advisors Financial Network largely followed a December 2016 FINRA settlement with the same subsidiaries that concluded more than 1 million customer records had been stored in an improper format. FINRA fined the companies $1.5 million for violations of the agency’s books and records rule.

In November 2016, the affiliates became aware many millions more customer records were stored in the improper format, FINRA said. They “did not advise FINRA of the issue when it was discovered and failed to take steps to fix and remediate this deficiency, or report it to FINRA, for more than three years thereafter.” The companies self-reported the issue to FINRA in April 2020.

More than 4 million records were allegedly stored in a noncompliant fashion between November 2016 and August 2020. The broker-dealers also did not have the required audit system in place, FINRA said.

Of the approximately 13 million records improperly stored, 11.7 million were those of Wells Fargo Clearing Services, FINRA noted.

“At Wells Fargo Advisors, we take our regulatory responsibilities seriously, and we are pleased to have this issue resolved,” Wells Fargo said in a statement.

FINRA on Dec. 13 announced an additional $3 million in fines and restitution to be paid by Wells Fargo Clearing Services and Wells Fargo Advisors Financial Network for failing to reasonably supervise short-term trading at unit investment trusts.

The same two broker-dealers were fined $2 million by FINRA in September 2020 for supervisory failures regarding the switching of customers’ variable annuities. The Securities and Exchange Commission fined them $35 million in February 2020 for failing to oversee advisors who recommended high-risk investments to risk-averse investors and for lacking adequate compliance policies and procedures around those recommendations.

Editor’s note: This story was updated Dec. 14 to include FINRA’s Dec. 13 consent order reached with Wells Fargo Clearing Services and Wells Fargo Advisors Financial Network.