SEC Charges Broker-Dealer First Horizon With Regulation Best Interest Violations

The Securities and Exchange Commission today announced charges against registered broker-dealer First Horizon Advisors, Inc. for failing to maintain and enforce policies and procedures reasonably designed to achieve compliance with Regulation Best Interest (Reg BI). The charges relate to First Horizon’s recommendations of a type of derivative security called a structured note. First Horizon agreed to pay a civil penalty of $325,000 to resolve the SEC’s charges. The SEC’s order finds that First Horizon failed to comply with its Reg BI policies and procedures in multiple ways. For example, in 2021, First Horizon migrated more than 5,000 customer brokerage accounts to its system from that of a broker dealer with whom First Horizon had merged. Because of incompatibilities in the two systems First Horizon did not have accurate customer information necessary to review structured note recommendations for compliance with First Horizon’s Reg BI policies and procedures. In addition, the registered representatives who joined First Horizon from the merging broker-dealer did not have access to First Horizon’s exception reporting site to review structured notes transactions flagged as non-compliant, as required by First Horizon’s Reg BI policies and procedures. The SEC’s order 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.” The SEC’s order finds that First Horizon violated Reg BI’s Compliance Obligation. Without admitting or denying the SEC’s findings, First Horizon agreed to a cease-and-desist order, a censure, and the above-mentioned civil penalty. The SEC’s investigation was conducted by Caryn Trombino, Melissa Lessenberry, and Stephanie Reinhart under the supervision of Armita Cohen and Osman Nawaz of the Complex Financial Instruments Unit and Paul Montoya of the Chicago Regional Office. The team was assisted by Alex Lefferts of the Enforcement Division’s Office of Investigative and Market Analytics. The examination that led to the investigation was conducted by Michael Wells, David Kinsella, Joon Kwak, Keith Frisz, Benjamin Kempton, Edward Holland, and John Brodersen of the SEC’s Division of Examinations, Chicago Regional Office.

The Securities and Exchange Commission today announced charges against registered broker-dealer First Horizon Advisors, Inc. for failing to maintain and enforce policies and procedures reasonably designed to achieve compliance with Regulation Best Interest (Reg BI). The charges relate to First Horizon’s recommendations of a type of derivative security called a structured note. First Horizon agreed to pay a civil penalty of $325,000 to resolve the SEC’s charges. The SEC’s order finds that First Horizon failed to comply with its Reg BI policies and procedures in multiple ways. For example, in 2021, First Horizon migrated more than 5,000 customer brokerage accounts to its system from that of a broker dealer with whom First Horizon had merged. Because of incompatibilities in the two systems First Horizon did not have accurate customer information necessary to review structured note recommendations for compliance with First Horizon’s Reg BI policies and procedures. In addition, the registered representatives who joined First Horizon from the merging broker-dealer did not have access to First Horizon’s exception reporting site to review structured notes transactions flagged as non-compliant, as required by First Horizon’s Reg BI policies and procedures. The SEC’s order 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.” The SEC’s order finds that First Horizon violated Reg BI’s Compliance Obligation. Without admitting or denying the SEC’s findings, First Horizon agreed to a cease-and-desist order, a censure, and the above-mentioned civil penalty. The SEC’s investigation was conducted by Caryn Trombino, Melissa Lessenberry, and Stephanie Reinhart under the supervision of Armita Cohen and Osman Nawaz of the Complex Financial Instruments Unit and Paul Montoya of the Chicago Regional Office. The team was assisted by Alex Lefferts of the Enforcement Division’s Office of Investigative and Market Analytics. The examination that led to the investigation was conducted by Michael Wells, David Kinsella, Joon Kwak, Keith Frisz, Benjamin Kempton, Edward Holland, and John Brodersen of the SEC’s Division of Examinations, Chicago Regional Office.