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.
FINRA said customers did not receive the full benefit of interest earned on swept cash.
The regulator also found the firm misclassified retained interest for net capital reporting.
This resulted in inaccurate monthly financial reports being filed with FINRA.
FINRA cited weaknesses in the firm’s supervisory systems.
The firm lacked written procedures to ensure disclosures matched actual fee calculations.
As a result, the issues persisted for several years without detection.
While bank deposit programs may offer useful features to customers, it is important for firms to ensure compliance with a range of relevant FINRA and SEC rules.
Bill St. Louis said.
He added that firms must ensure accuracy in customer communications.
American Portfolios was acquired by Osaic Holdings in November 2022.
The firm later merged into Osaic Wealth in October 2024.
FINRA said the penalty reflects cooperation from Osaic during the investigation.
American Portfolios disclosed the issue to regulators in October 2022.
Restitution payments to customers began before the settlement was finalised.
The firm consented to FINRA’s findings without admitting or denying the charges.