FINRA Fines Pershing $1.4 Million for Inaccurate Interest Rate Reporting
Pershing LLC, an American clearing house and subsidiary of The Bank of New York, has agreed to pay a fine of $1.4 million as a part of a settlement with the Financial Industry Regulatory Authority.
According to FINRA, from January 2010 through December 2022, Pershing distributed more than 1 million account statements and trade confirmations that listed inaccurate interest rate information for certain variable rate securities. The firm 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.
FINRA reported that the interest rate discrepancies arose from two primary sources. First, Pershing relied on a third-party vendor for interest rate data on variable rate securities issued by foreign entities. This vendor failed to provide updated information for at least 13,000 such securities between January 2016 and September 2022, causing Pershing’s master system to retain outdated rates.
Additionally, the firm’s master system contained coding that, in many instances, prevented it from listing a zero percent interest rate for certain domestic variable rate bonds. When the third-party vendor supplying this data provided a zero percent rate, Pershing’s system disregarded it, leading to further inaccuracies. This caused tens of thousands of inaccuracies in Pershing’s security master system.
Due to these errors, customers received approximately one million account statements with incorrect interest rate information, impacting information including current interest rate, accrued interest, estimated annual income, and estimated annual yield. Furthermore, at least 200,000 trade confirmations displayed inaccurate “current coupon” rates. The firm’s online access portals, used by both customers and registered representatives, also reflected these inaccuracies.
FINRA also stated that Pershing ignored red flags that it was distributing inaccurate interest rate information to customers and found that the firm was at fault for not having adequate supervisory systems in place to detect and rectify these errors. Despite receiving numerous customer complaints about inaccurate interest rates on account statements, Pershing failed to investigate the root cause or assess the extent of the problem. The firm only took corrective action after FINRA initiated its investigation.
While these errors did lead to the dissemination of incorrect information, FINRA emphasized that they did not affect the actual market yield paid to customers. Nevertheless, FINRA stated that these errors violated Rule 2010 which requires “a member in the conduct of its business, [to] observe high standards of commercial honor and just and equitable principles of trade;” and Rule 3110 which “requires a member firm to establish and maintain a supervisory system, including [written supervisory procedures], that is reasonably designed to achieve compliance with applicable securities laws and regulations, and with applicable FINRA rules.”
In addition to the fine, Pershing has been censured. The firm has also implemented corrective measures, including system coding changes, enhanced processes for verifying third-party data, and revised supervisory procedures.
Pershing did not admit or deny the allegations.
Pershing is headquartered in Jersey City, N.J., and employs more than 1,100 registered individuals in 15 branch offices. The firm provides clearing services and carries accounts for more than 450 introducing firms on both fully disclosed and omnibus bases. It also provides prime brokerage and trading and execution services. As of March 31, 2024, Pershing represented more than $2.5 trillion in global client assets.
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