A small Texas-based brokerage firm is the latest registrant to settle FINRA charges for violating the SEC's Best Interest Rule obligations. It is the second such case this week and the last example in the accelerating trend of FINRA Reg BI enforcement actions.

Murray Securities is based in Tyler, Tx., employs three registered representatives and works with retail clients, according to the settlement letter of the firm. Starting June 30, 2020 (when Reg BI reached its implementation date), the firm failed to establish policies and procedures that complied with Reg BI, according to the settlement.

The settlement stems from a FINRA examination of the firm.

Although the firm updated its procedures in October 2021, the policies only discussed the SEC rule “in general terms,” ​​according to FINRA. Notably, the revised policies did not address Reg BI's conflict of interest or customer care obligations.

“For example, with respect to the duty of care, policies and procedures do not require registered representatives to consider costs or reasonably available alternatives when making recommendations to retail clients,” the settlement letter said.

Murray also had no written procedures for complying with Reg BI and did not clarify how the firm's compliance representative should supervise other employees, including how often these reviews should occur and how they should be done, according to the agreement.

In addition, the firm removed mandatory information from its Form CRS, which the SEC requires registrants to submit to clients.

The initial version of the firm's form did not include a required topic on its legal and disciplinary history, and even after the firm updated its form in late 2021, it failed to include a mandatory statement suggesting clients ask about conflicts. , according to FINRA. Until then, Murray Securities' compliance procedures contained no reference to Form CRS.

Although the firm has updated them, they still do not detail how compliance representatives should supervise their associates to ensure they are meeting compliance. The firm did not return a request for comment by press time.

The firm did not admit or deny the findings, but agreed to a censure, a $35,000 fine and to update its oversight procedures within 60 days.

Earlier this week, FINRA suspended Robert Gleason, Jr. for three months for “intentional” violation of Reg BI. Gleason was an associated representative with Cantella & Co until December 2021, when Cantella filed a termination notice alleging concerns about the “origin of notes” added to certain client letters.

In February 2022, Gleason joined IFP Securities, according to his BrokerCheck profile. However, that firm let him go because “his trading practices exceeded the firm's risk appetite,” according to the FINRA settlement.

In 2020 and 2021, Gleason recommended an excessive series of securities transactions for an unidentified retail client that “put his own interests ahead of the client's,” according to FINRA. The client was in her early sixties, with an estimated income of $50,000 and a liquid net worth of $700,000.

Gleason pulled the trigger on 91 trades in her account with a total cost-to-equity ratio of more than 28% (meaning the client's account would have to grow by more than that amount within the year just to break even) . Gleason agreed to a three-month suspension and a $5,000 fine to settle the charges. Gleason could not be reached for comment as of press time.

Despite the relatively new addition of Reg BI to the regulatory tool belt, is already among FINRA's top five enforcement issues in terms of fines, according to a study by law firm Eversheds Sutherland.

After the implementation of Reg BI 2020, FINRA brought the first case related to the SEC's 2022 rule suspending a former representative with Network 1 Securities for alleged conduct similar to their allegations against Gleason (this followed the first action of the commission related to Reg BI with several months).

Earlier this year, LPL Financial agreed to pay more than $5.5 million in fines and more than $500,000 to settle FINRA fees, it did not comply with Reg BI when representatives recommended certain trades.

Reg BI cases brought in the fourth highest amount of fines in 2023 (although the hefty LPL fine accounted for the bulk of this), according to the Eversheds Sutherland report. In total, FINRA reported 15 Reg BI cases in 2023.

Adam Pollet, a partner at Eversheds Sutherland and a co-author of the report, said WealthManagement.com that while the SEC will often bring initial cases under its newer rules or regulations (or more important cases), FINRA will take the lead as Reg BI becomes part of day-to-day regulatory oversight.

“Given the increase in FINRA disciplinary actions related to Reg BI in 2023, I think it's fair to say that FINRA has already established itself as the lead regulator for Reg BI going forward,” he said.