The Financial Industry Regulatory Authority (FINRA) has imposed a $225,000 fine on Merrill Lynch, Pierce, Fenner & Smith Inc., along with a formal censure, for failing to properly report more than 1,600 customer complaints. The regulatory action stems from the firm's inadequate oversight of post-call survey feedback, which led to violations of FINRA's reporting rules.
According to the settlement, the issues were identified in 2023 when Merrill Lynch analyzed a sample of over 220,000 written survey responses from its call centers. While the firm logged 2,423 complaints from these surveys and reported them on time, it overlooked more than 1,600 additional written complaints. The majority of these missing complaints pertained to service issues, while others involved account access, documentation, technology problems, and security lapses.
FINRA's investigation revealed that Merrill Lynch's supervisory system was flawed. The firm used a lexicon of search terms designed for consumer banking to flag potential complaints, rather than a system tailored for its broker-dealer operations. As a result, over 85% of the unreported complaints from the 2023 survey responses were not identified as such.
The regulator emphasized that accurate customer complaint data is crucial for identifying potential risks to investors and for initiating investigations into firms and individual representatives. Under FINRA Rule 4530(d), member firms are required to submit summary statistics on written customer complaints by the 15th day after the end of each quarter in which the complaint was received.
Merrill Lynch self-disclosed the issue to FINRA in April 2024, after discovering the problem internally. The firm then conducted a thorough lookback of its 2023 survey responses, resolved the identified complaints, and notified the regulator. As a corrective measure, Merrill Lynch suspended the written commentary field in its customer surveys in January 2024.
The settlement covers the period from January 2018 to December 2023, and Merrill Lynch agreed to the fine and censure without admitting or denying FINRA's findings. The firm, headquartered in New York, is a wholly owned subsidiary of Bank of America Corp. and operates over 4,000 branches with more than 27,500 registered representatives.
This case highlights the importance of robust compliance systems in the financial industry. FINRA's action underscores that even large, well-established firms must ensure their oversight processes are properly aligned with regulatory requirements to protect investors and maintain market integrity.
