Mismatched Compliance Lexicon Led to Thousands of Unreported Complaints at Merrill Lynch, FINRA Finds
Merrill Lynch, Pierce, Fenner & Smith Incorporated failed to report thousands of written customer complaints to the Financial Industry Regulatory Authority over a six-year period, the regulator disclosed this month, resulting in a censure and a $225,000 fine.
The enforcement action, accepted June 10, stems from a supervisory systems failure rooted in mismatched compliance infrastructure. From January 2018 through December 2023, Merrill Lynch invited call-center customers to complete post-call surveys that included a written commentary field. The firm’s system for flagging potential complaints in those surveys relied on a search-term lexicon originally built for consumer banking products rather than broker-dealer complaint identification. Survey responses that did not trigger that lexicon were not reviewed for reportable complaints. More than 85% of the unreported complaints in 2023 lacked the “potential complaint” flag the system required to route them for review.
In a sample period covering calendar year 2023, the firm received more than 220,000 written survey responses. It reported 2,423 complaints from that pool on time and failed to report more than 1,600 others. The unreported complaints included issues involving inability to access funds, account documentation, technical system failures, and security incidents. FINRA found the firm violated Rules 4530(d), 3110(a) and (b), and 2010.
Merrill Lynch self-disclosed the failure, conducted a one-year lookback of 2023 survey responses, resolved identified complaints, and suspended the written commentary field in its surveys in January 2024. FINRA credited the self-disclosure in its sanctions determination.
The failure illustrates a risk pattern relevant across the distribution channel: compliance systems built for one business line applied without adaptation to another. FINRA’s complaint-reporting framework applies equally to broker-dealers regardless of product shelf composition.
Visit the AltsWire directory page.
