US financial industry regulator FINRA has fined BofA Securities $90,080 for violating regulations by filing untimely or inaccurate notifications with the regulator. FINRA also charged BofAS for failing to maintain a proper supervisory system. BofAS' filings allegedly did not meet the regulatory deadlines.

Inadequate Supervisory Systems

According to FINRA's statement, between August 2019 and August 2022, BofA Securities violated FINRA Rules 5190 and 2010 in 195 instances by submitting untimely or inaccurate notifications. These violations were related to the company's participation in 112 security distributions subject to Regulation M under the Securities Exchange Act of 1934.

Regulation M is designed to prevent manipulative conduct during securities distributions by restricting certain actions that could influence the pricing. Specifically, the rule prohibits underwriters, broker-dealers, issuers, and other participants from bidding for or purchasing the security during the restricted period, which begins one to five days before the offering price is determined.

To comply, firms must submit detailed notifications to FINRA in advance, a requirement that BofA Securities repeatedly failed to meet. Further exacerbating the issue, BofA Securities reportedly did not establish or maintain adequate supervisory systems and procedures to ensure compliance with FINRA Rule 5190.

From August 2019 to March 2024, the firm lacked a robust system to supervise and verify the timeliness and accuracy of the required notifications. The firm's written supervisory procedures were insufficient, lacking specific guidance and thorough reviews necessary for compliance.

According to FINRA, BofA Securities relied on internal emails to initiate distribution marketing but did not ensure these notifications aligned with regulatory timelines. Consequently, when marketing periods were shorter than the restricted periods, the notifications became untimely.

Failing to Verify Participants

The supervisory shortcomings extended to the accuracy of notifications, with the firm failing to verify that all distribution participants were properly identified and reflected in amended notifications. BofA Securities agreed to the settlement, which included a censure that waives any right to contest the payment.

Last year, FINRA fined BofA Securities a substantial $24 million, alleging involvement in over 700 instances of spoofing within the US Treasury secondary markets. Spoofing is the act of placing deceptive orders to manipulate market activity.

Two former traders reportedly used this tactic from October 2014 to February 2021, engaging in 717 instances of spoofing. The regulator accused BofA Securities of failing to establish adequate measures to detect spoofing activities as its system only addressed algorithms.