Merrill Lynch Fined by FINRA - Analyst Blog

On Wednesday, Merrill Lynch, a part of Bank of America Corporation (BAC), was charged $0.5 million by the Financial Industry Regulatory Authority (FINRA) for failing to provide sales charge discounts to its customers who had purchased unit investment trusts (UITs). 

 

Merrill Lynch will have to pay $2 million as compensation to customers who did not get the discounts from January 2006 till date. Bank of America had acquired Merrill Lynch in 2009, following the financial crisis.

 

The sponsors of UITs usually provide discounts for bulk purchase of the units; the discounts increase with the volume of units bought. Also, investors receive additional discounts if they convert the proceeds from one UIT into buying another.

 

In its allegation, FINRA has accused that Merrill Lynch had failed to give any guidance on the discounts to the brokers till May 2008, though the regulations had been issued in early 2004. It did not have a proper system that can track whether the investors received the discounts or not. This led to an increase in investment cost for the investors.

 

Merrill Lynch has agreed to settle the matter by paying the fine and compensation without either admitting or denying the charges.

 

Adding to the woes of investment bankers is the financial reform Act signed by President Obama in July 2010, which is expected to further tighten the regulatory standards to ensure consumer protection. Big commercial banks including Bank of America, Morgan Stanley (MS), JPMorgan Chase & Co. (JPM), Wells Fargo & Company (WFC), Goldman Sachs Group Inc. (GS) and Citigroup Inc. (C) will all be hurt. Moreover, the rating agencies that had previously rated many of the problem securities of these investment giants as worthy of being marketable will now be under greater pressure to provide better transparency to investors.