Wells Fargo Clearing Services and Wells Fargo Advisors Financial Network have been ordered by the Financial Industry Regulatory Authority (FINRA) to pay over $3.4m to settle charges related to risky exchange-traded products (ETPs) recommendations to customers.

The regulator alleged that between July 2010 and May 2012, Wells Fargo representatives sold volatility-linked ETPs without fully understanding their risks.

Some Wells Frago brokers also believed that the products could be used as a long-term hedge in case of a market downturn even though such products are usually used for short-term trading and degrade significantly over time.

The company was also accused of failing to put in place an effective system to monitor sales of these products.

However, the company took remedial measures in May 2012 before the regulator’s detection of the matter and also appointed a consulting firm to determine the appropriate restitution for affected customers.

Wells Fargo agreed to the settlement without admitting or denying the allegations.

FINRA department of enforcement executive vice president Susan Schroeder said: “Firms soliciting sales of volatility ETPs should already be well aware of the unique risks that they pose – but FINRA’s Regulatory Notice 17-32 is intended to further educate the industry so that member firms can assess their own practices and take appropriate remedial action if necessary.”