Compliance and Regulatory Alerts  |  07-23-18

Compliance & Regulatory Update:  More FINRA UIT Warnings and Enforcement


In a recent Bates Group article covering FINRA’s 2018 Annual Conference highlights, we reported that Michael Solomon, FINRA’s Senior Regional Director, warned of specific exam deficiencies that may trigger compliance scrutiny. In particular, he urged firms to protect investors against representatives attempting to “gam[e] the system” by trading Short Term Unit Investment Trusts (“UITs”).

FINRA has put teeth into that warning by bringing enforcement actions against firms in connection with their representatives’ “offending” UIT client sales activity. In one recent case, a firm submitted, and FINRA accepted, a Letter of Acceptance, Waiver and Consent (“AWC”) settling a matter in which FINRA found the firm to have violated FINRA and NASD Rules “by failing to establish, maintain and enforce a supervisory system and written supervisory procedures reasonably designed to detect and prevent unsuitable short-term trading in UITs.” Among FINRA’s findings, the AWC noted that: “[O]n several occasions, [the firm’s] representatives recommended that their customers use the proceeds from the short-term sale of a UIT to purchase another UIT with identical investment objectives. As a result of this trading, customers paid excess sales charges.”

The AWC is an additional cautionary note reminding firms that short term trading of UITs raises suitability concerns because of their long-term nature, their structure, and upfront costs. FINRA found that “during the relevant period, the firm had no surveillance or exception reports designed to detect unsuitable short-term trading” of UITs.


Bates and UIT Support

Bates Group has significant experience assessing and documenting a firm’s trading activity as it relates to the suitability of the sale, purchase and exchange of UITs and other securities. On behalf of our clients, we produce customized reports that analyze and summarize UIT trading, and we serve as independent expert support in evaluating, negotiating and addressing regulatory investigations and enforcement actions. For purposes of client remediation, we are also able to review data across entire UIT trading platforms over a period of years to identify amounts to be remediated back to clients.

If you are facing an investigation or enforcement matter, let us help devise and execute a strategy using our data collection and analysis methods, and, where necessary, provide remediation and/or internal disciplinary assistance.


To learn more, please contact Scott Lucas, Managing Director, Regulatory and Internal Investigations, at or by phone at 503-670-7772.


Get Bates Group News and Alerts in your Inbox

Sign Up Now

Contact Bates Group

Bates Group is with you every step of the way. Contact us today for more information on how our End-to-End Solutions can help your firm.

Contact Bates Group