Stifel Financial Corp.’s (SF Quick QuoteSF - Free Report) subsidiaries, Stifel Nicolaus & Co. and Stifel Independent Advisors, have agreed to pay $2.3 million in fines and restitution over alleged violations of the Financial Industry Regulatory Authority’s (“FINRA”) rules relating to non-traditional exchange-traded products (ETPs).

In its order, FINRA said that the firms did not establish, maintain and enforce supervisory systems, including written supervisory procedures (WSPs), reasonably designed to achieve compliance with their suitability obligations.

The fine comes 10 years after the firms faced similar allegations. In January 2014, the firms were ordered to pay $1 million to settle similar violations.

From January 2014 to June 2014, the firms took steps to address the supervision of non-traditional ETPs, including revising their WSPs and implementing new automated alerts to monitor holding periods.

However, according to FINRA, between June 2014 and March 2018, the firms’ supervisory system was still not reasonably designed.

The WSPs could not provide reasonable guidance on how to identify and address potentially unsuitable non-traditional ETP recommendations.

Notably, non-traditional ETPs are designed to be held for only short periods, typically a day to a month. Per FINRA, Stifel failed to take reasonable steps to detect and address hundreds of potentially unsuitable recommendations that customers buy and hold for longer periods.

FINRA said that in May 2014, SF implemented a 30-day alert system but almost immediately deactivated it after receiving 2,000 hits per day. The alert system remained inactive for almost eight months.

Then, in August 2016, Stifel’s compliance department discovered the alleged non-traditional ETP issues. To address the issues, the company started tracking non-traditional ETP positions held for more than 30 days and encouraged supervisors to speak with representatives and customers about selling aged positions.

However, per FINRA, this was not sufficient in certain instances to prevent further misconduct until Stifel Independent Advisors started prohibiting solicited sales in November 2017 and Stifel Nicolaus did the same in March 2018.

While the firms have agreed to settle the violations, they have not admitted or denied FINRA’s findings.

Over the past six months, SF shares have gained 24.8% compared with the industry’s 23.2% rise.

Image Source: Zacks Investment Research

Currently, Stifel carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Legal Issues Faced by Other Finance Companies

In January 2024, FINRA announced that LPL Financial Holdings Inc. (LPLA Quick QuoteLPLA - Free Report) was penalized for securities violations. LPLA agreed to pay more than $6 million in penalties to settle FINRA claims that the company failed to properly supervise transactions and recommendations that its brokers made, and it sent out inaccurate information to its customers.

LPL Financial accepted FINRA’s findings without admitting or denying them, according to a letter of acceptance, waiver and consent that the firm submitted to the self-regulatory organization.

Recently, the Federal Reserve and the Office of the Comptroller of the Currency (“OCC”) imposed a fine of $348.2 million on JPMorgan (JPM Quick QuoteJPM - Free Report) for failing to properly monitor the trading activities of its clients and employees.

Per the regulators, the misconduct occurred between 2014 and 2023. The regulators said that JPM “engaged in unsafe or unsound practices” and “failed to establish adequate governance over trading venues on which it is active.”

The OCC stated that JPMorgan “failed to surveil billions of instances of trading activity on at least 30 global trading venues.”

A spokesperson for JPMorgan said that the bank self-identified the issue and was working to address the matter.