The Financial Industry Regulatory Authority (FINRA) has fined Santander Securities $6.4m for supervisory failures related to sale of Puerto Rican municipal bonds, which have plunged in value in recent years.
The sanctions against Santander include $4.3m in restitution to certain customers who were solicited to purchase the bonds and $2m for supervisory failures related to sales of PRMBs and Puerto Rican closed-end funds.
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The regulator also ordered Santander to pay $121,000 in restitution and to buy back securities sold to customers impacted by Santander’s failure to supervise employee trading.
FINRA executive vice president and chief of enforcement Brad Bennett said: "This is a strong reminder to firms that they must focus on customers’ exposure to market risks and suitability, particularly in those markets like Puerto Rico that present unique risks and challenges."
Between December 2012 and October 2013, Santander did not ensure that its proprietary product risk-classification tool accurately reflected market risks of investing in PRMBs, and failed to adequately supervise its customers’ use of margin and concentrated positions in their accounts, FINRA said in a statement.
The securities industry’s self-regulator added that Santander didn’t revise the risk-tool classifications following Moody’s Investors Service’s downgrade of some of the island’s municipal bonds to a notch above junk territory in December 2012.
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By GlobalDataThe day after the move, Santander allegedly stopped buying Puerto Rican municipal bonds being sold by customers and accelerated efforts to dump its inventory.
Santander neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.
In September 2015, FINRA and the SEC hit Swiss banking giant UBS with nearly $34m fine for selling risky Puerto Rico bond funds.
