FINRA has ordered American Portfolios Financial Services to pay $4.6 million in restitution and a $550,000 fine over disclosure failures in its bank deposit programme.
The action relates to conduct between April 2018 and September 2022.
During that period, around 85,000 customers were enrolled in the firm’s cash sweep bank deposit programme.
The programme automatically transferred uninvested cash into FDIC-insured, interest-bearing bank accounts.
FINRA found the firm misrepresented how customer yields and fees were calculated.
Disclosures stated that fees were tied to the Federal Funds Target rate.
In practice, the firm used other factors, including competitor rates, to determine customer yields.
American Portfolios retained the remaining interest paid by partner banks after certain costs.
FINRA said this retained interest effectively functioned as an undisclosed fee.
Regulators found customers were not informed the firm was keeping surplus interest.
FINRA calculated that customers paid more than $3 million in excess fees.
The firm also retained about $1.25 million in surplus interest linked to rate changes.