In August 2025, a broker-dealer settled an enforcement proceeding brought by FINRA regarding the broker-dealer firm’s alleged failure to apply mutual fund sales charge waivers and fee rebates. According to the letter of acceptance, waiver, and consent, from August 2019 to July 2024 the firm failed to establish and maintain a system reasonably designed to supervise the application of sales charge waivers and fee rebates to which its customers were entitled through rights of reinstatement offered by mutual fund companies.   

Mutual funds that impose sales charges often provide shareholders “rights of reinstatement,” which are disclosed in the registration statement and generally allow investors to purchase fund shares without incurring a sales charge, or to recoup a previously paid contingent deferred sales charge, if the investor previously sold shares of the same fund or another fund in the same fund family during a specified look-back period. According to the letter, the broker-dealer’s failure to apply sales charge waivers and fee rebates caused its customers to pay $710,739 in excess sales charges and fees.

FINRA found that the firm violated FINRA Rules 3110(a) and 2010, which require FINRA members to establish and maintain a system to supervise the activities of each associated person that is reasonably designed to achieve compliance with applicable securities laws, regulations, and FINRA rules, and each FINRA member, in the conduct of its business, to observe high standards of commercial honor and just and equitable principles of trade, respectively. Without admitting or denying the allegations, the firm was censured and agreed to pay $710,739 in restitution. This settlement is notable because no fine was imposed “in light of the firm’s extraordinary cooperation,” which included the firm’s extensive review of its systems, practices, and procedures, engagement of an outside consultant to identify disadvantaged customers and calculate remediation due, establishment of a plan to efficiently identify, notify, and repay customers eligible for restitution, establishment of a process to ensure that customers receive rights of reinstatement benefits, prior payment of restitution to some impacted customers in the amount of $90,563, and substantial assistance to FINRA in the investigation.

The FINRA letter is available here.