Merrill Lynch agreed to pay the Financial Industry Regulatory Authority $6.25 million Wednesday as well as approximately $780,000 in restitution for inadequately supervising its customers' use of leverage in their Merrill brokerage accounts.
The infractions occurred in Merrill "loan management accounts," which FINRA describes as lines of credit that allow the firm's customers to borrow money from an affiliated bank using the securities held in their brokerage accounts as collateral.
FINRA found that from January 2010 through November 2014, Merrill lacked adequate supervisory systems and procedures regarding its customers' use of proceeds from these LMAs.
More specifically, FINRA found that "although both Merrill policy and the terms of the non-purpose LMA agreements prohibited customers from using LMA proceeds to buy many types of securities, the firm's supervisory systems and procedures were not reasonably designed to detect or prevent such use."
FINRA states that it further found that during the relevant period, on thousands of occasions, Merrill brokerage accounts collectively bought hundreds of millions of dollars of securities within 14 days after receiving incoming transfers of LMA proceeds.
