Pershing Hit With $1.4M Fine Over Bad Interest Rate Data
One million account statements and trade confirmations had inaccurate interest rate information for some securities, FINRA said.
The Financial Industry Regulatory Authority has fined BNY’s Pershing $1.4 million for distributing more than one million account statements and trade confirmations that listed inaccurate interest rate information for certain variable rate securities.
According to FINRA’s order, Pershing also “provided inaccurate interest rate information about those securities through the online access portals the firm provided for customers and registered representatives of the introducing firms that used Pershing’s clearing services.”
The order states that from January 2010 through December 2022, Pershing’s ”security master system, which contains information the firm relies on when generating transaction confirmations and customer account statements, contained incorrect information for certain categories of securities with variable interest rate features” for two reasons.
First, Pershing relies on a third-party vendor to provide interest rate information for variable rate securities issued by foreign issuers.
Between January 2016 and September 2022, the firm’s third-party vendor “failed to provide any updated interest rate information for at least 13,000 foreign variable rate securities,” the order states. “As a result, for each such security, Pershing’s security master system continued to reflect the initial interest rate, even after the security’s interest rate had changed.”
Second, from 2010 through 2022, Pershing’s security master system “contained coding that, in many instances, prevented it from listing zero percent as the interest rate for certain variable rate domestic bonds,” the order said.
“Pershing regularly received a file from a different third-party vendor with updated rate information for the bonds, which the firm fed into its security master system,” it added.
As a result, from January 2010 through December 2022, Pershing distributed or made available the following inaccurate information:
- About one million client account statements with inaccurate information for certain variable rate securities, such as: current interest rate, accrued interest, estimated annual income, and estimated annual yield;
- At least 200,000 trade confirmations listing an inaccurate “current coupon” rate for certain variable rate securities; and
- Inaccurate information for affected securities through its online access portals, including: current interest rate, accrued interest, estimated annual income, and estimated annual yield.
The inaccuracies did not affect the actual market yield paid to clients, according to FINRA.
During the same period, “Pershing failed to establish and maintain a supervisory system, including written supervisory procedures, reasonably designed to review the accuracy of interest rate information disseminated by the firm,” violating FINRA Rules 3110 and 2010.
A spokesperson for Pershing said in a statement shared with ThinkAdvisor Wednesday that “Pershing is pleased to have resolved this matter. We take our regulatory and compliance responsibilities very seriously.”
(Credit: Bloomberg)