FINRA fines Northern Trust for lack of business oversight

The Financial Industry Regulatory Authority fined Chicago-based Northern Trust Securities $600,000 for improperly keeping track of its investment products and exposing investors to major risk. FINRA said Thursday that Northern Trust insufficiently monitored its collateralized mortgage obligations sales as well as its large securities trades. Between January 2007 and June 2008, 43.5% of Northern Trust’s business was not reviewed or supervised, FINRA alleged. More specifically, FINRA said certain customer accounts at the firm held “potentially unsuitable” levels of CMOs. The problem persisted from October 2006 through October 2009, FINRA said. The trade oversight body said Northern Trust’s internal reporting system is to blame because it does not analyze CMO transactions, trades of 10,000 equity shares or more and trades of 250 or more fixed-income bonds. “Northern Trust’s deficient systems and procedures allowed more than 40% of its transactions to proceed without review, which in turn left vulnerable investors exposed to the risk of losing all or a substantial portion of their principal through potential over-concentration in CMOs,” said Brad Bennett, FINRA executive vice president and chief of enforcement. A Northern Trust representative neither confirmed nor denied the allegations, but told HousingWire the company agreed to pay the fine. “NTSI has addressed the systems and supervisory issues that were the subject of the settlement with FINRA,” the spokesman said. Northern Trust Securities is a branch of Northern Trust Corp., an investment management firm with $93 billion in banking assets and $662.2 billion in assets under management. The company is not alone in its FINRA reprimand. FINRA recently fined Credit Suisse and Merrill Lynch for alleged misrepresentations of subprime delinquencies in pools of residential mortgage-backed securities. The two financial giants received $7.5 million in fines. Southwest Securities also agreed to pay a $650,000 fine for due diligence deficiencies, while Cutler Securities was expelled from the organization for marking short-sale stock orders as long sale orders. Write to Christine Ricciardi. Follow her on Twitter @HWnewbieCR.