FINRA Fines California Broker-Dealer for Reg BI Violations

J.K. Financial, a California-based broker-dealer, has been censured and fined $65,000 by the Financial Industry Regulatory Authority for a host of compliance violations, including failures related to Regulation Best Interest, or Reg BI, email retention, and supervision of outside business activities.

The sanctions follow a FINRA cycle exam that revealed systemic failures in the firm’s supervisory and recordkeeping systems from August 2020 to May 2024.

The firm, which has 26 registered representatives and sells equities, mutual funds, and variable annuities, was also fined $10,000 by the U.S. Securities and Exchange Commission in 2022 for a prior violation related to its customer relationship summary, or Form CRS.

The most critical finding involved J.K. Financial’s failure to establish policies and procedures reasonably designed to comply with the care obligation of Reg BI. Reg BI requires firms to act in the best interest of their retail customers when making recommendations.

According to FINRA, the firm’s new account forms were deficient, failing to collect essential customer profile information such as risk tolerance, liquidity needs, and time horizons.

Also, for customers purchasing direct business mutual funds, J.K. Financial often relied on investment company’s forms, which frequently lacked basic investment profile details. Also, it had no formal process for representatives to document customer profile information obtained through oral communications, leading to a failure to create and keep required records.

FINRA also found J.K. Financial violated multiple rules related to record preservation and supervision:

• From August 2020 to May 2024, the firm’s written supervisory procedures, or WSPs, for email were inadequate, failing to specify who was responsible for review, how reviews should be conducted, or how samples should be determined. Critically, from December 2021 to July 2022, a technical problem with its third-party service provider resulted in the firm failing to archive or review approximately 1,100 business emails for 38 addresses. Also, J.K. Financial permitted some representatives to use outside email accounts for securities business without taking any steps to review or preserve those communications.
• Despite a previous SEC $10,000 fine regarding the document, J.K. Financial was found to have omitted required information from its Form CRS from June 2024 to April 2025. The firm failed to disclose its disciplinary history and omitted mandatory “conversation starters” concerning fees, costs, and conflicts of interest.
• The firm violated rules by failing to properly supervise the outside business activities of its registered representatives. From 2020 to 2024, the firm’s WSPs did not require the necessary documentation to show that the firm had evaluated the potential conflicts or interference presented by the activities, as required by FINRA Rule 3270.01.

In addition to the censure and the fine, J.K. Financial is required to certify to FINRA within 90 days that it has fully remediated all identified issues. This includes implementing a supervisory system and written procedures reasonably designed to achieve compliance with Reg BI, email retention, and outside business activity rules going forward.

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