FINRA has censured and slapped Capital One Investing with a $500,000 fine for purported issues surrounding its PortfolioBuilder online brokerage tool.
FINRA scolded Capital One for making suitability determinations for approximately 730,000 customers without allegedly sending them required notices. Broker-dealers are required to send — and create a record that it sent—specific account information to customers for whom suitability determinations are made within 30 days of the account opening and every 36 months thereafter, a requirement that Capital One overlooked, FINRA claimed.
None of the 730,000 customers received the 30-day notice and most did not receive the 36-month notices, according to FINRA. The purported violations occurred from 2004 to December 2013.
FINRA also chided Capital One for providing inaccurate historical weighted-average performance results to customers who used PortfolioBuilder2. The online tool, which launched in May 2014 to replace the original PortfolioBuilder, allowed customers to calculate an individual ETF's historical return and the weighted-average historical performance of a selected ETF portfolio over time periods ranging from three months to 10 years, FINRA said.
If an ETF had not existed for the specified time period, the tool displayed a dash, rather than a numeric value in the historical return field for that ETF. However, FINRA said, when calculating the weighted-average performance for an entire portfolio, the tool assumed a 0% return for those ETFs that had not existed for the totality of the specified period. In these cases, the use of the 0% return resulted in under- or over-reporting of actual performance for the whole portfolio, FINRA claimed.
The regulator also found fault with Capital One's written supervisory policies and procedures. It reprimanded the firm for not having written procedures relating to the required 30-day and 36-month notices and for not having required regular reviews of its online system to ensure the accuracy of information displayed to customers.
Pam Girardo, a spokesperson for Capital One, had no comment beyond what was in the settlement agreement it reached with FINRA on Monday. In the settlement, Capital One neither admitted nor denied the charges, but consented to an entry of FINRA's findings.
In addition to being censured and fined $500,000, Capital One was ordered to review its supervisory systems and procedures regarding recordkeeping and the accuracy of information displayed to customers. It was given 30 days to adopt and implement policies and procedures to ensure compliance with the rules it violated.
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