First Horizon Corporation FHN, wealth management subsidiary, First Horizon Advisors, Inc., has been charged by the Securities and Exchange Commission (SEC) for failing to maintain and implement policies and procedures designed to achieve compliance with Regulation Best Interest (Reg BI).
The charges are related to First Horizon's recommendations for structured notes, a type of derivative security.
SEC Charges First Horizon for Multiple Violation
The SEC’s order finds that First Horizon failed to comply with its Reg BI policies and procedures in multiple ways.
More than 5,000 client brokerage accounts were transferred from BD Iberia Financial Services LLC to First Horizon's system after they merged in July 2020. FHN was unable to assess structured note recommendations for compliance with its Reg BI standards and procedures due to incompatibilities between the two systems, which prevented First Horizon from having accurate client information.
As mandated by First Horizon's Reg BI policies and procedures, the registered representatives who joined First Horizon from the merging broker-dealer were not able to access First Horizon's exception reporting site to analyze structured notes transactions marked as non-compliant.
The SEC also finds that, in 2023, the firm approved structured note recommendations without all the documentation required by its Reg BI policies and procedures.
“To help reduce the chance of retail customer harm, Reg BI requires broker-dealers to establish, maintain and enforce written policies and procedures reasonably designed to achieve compliance with Reg BI as a whole,” said Osman Nawaz, Chief of the SEC Enforcement Division’s Complex Financial Instruments Unit. “This action underscores that broker-dealers must ensure appropriate compliance around complex financial products and that it is not enough to simply have written policies; firms must also enforce them.”
According to the SEC's order, First Horizon violated its compliance obligation with Reg BI.
Penalty to be Paid by First Horizon
First Horizon consented to settle the SEC's claims by paying a $325,000 civil penalty.
To settle the SEC's charges, First Horizon agreed to a censure and a cease-and-desist order in addition to the civil penalty.
FHN’s Zacks Rank & Price Performance
In the past year, FHN’s shares have surged 46.2% compared with the industry’s 27.3% growth.
Image Source: Zacks Investment Research
Currently, First Horizon carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Legal Issues Faced by Other Finance Companies
This month, The Toronto-Dominion Bank TD agreed to pay a $28-million penalty in response to the Consumer Financial Protection Bureau (CFPB) order concerning credit reporting issues. The bank has been accused of mishandling customers’ credit information and failing to make necessary amendments to its practices.
TD must pay $20 million into the CFPB’s fund for victims of consumer financial protection law violations. An additional $7.76 million will be used to compensate affected customers, each of whom will receive $150. Any of the unclaimed funds will be transferred to the CFPB.
In a settlement with the California Department of Justice over crypto withdrawals, Robinhood Markets, Inc.’s HOOD cryptocurrency platform is set to pay $3.9 million. Per the claims, HOOD prevented its customers from withdrawing cryptocurrency from their accounts between 2018 and 2022.
Per California’s Attorney General Rob Bonta, Robinhood violated California law as it failed to deliver cryptocurrencies that its customers bought and because of this, customers were unable to withdraw their assets, forcing them to sell the same to exit the platform.
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