On January 10, 2019, FINRA fined CFD Investments $125,000 for failure to establish, maintain and enforce a supervisory system and written supervisory procedures reasonably designed to ensure that its registered representatives’ recommendations of variable annuities complied with applicable securities laws, regulations and FINRA rules.
CFD failed to provide sufficient training to its registered representatives and reviewing principals to ensure that they understood the material features of variable annuities, specifically the additional scrutiny of the suitability issues raised by the sale of an L-share contract combined with a long-term rider, or to a customer with a long term investment objective. The findings also stated that the firm failed to implement reasonable procedures to supervise rates of variable annuity exchanges by associated persons. The procedures did not provide any guidance regarding what constituted excessive switching, and how to supervise for excessive switching. Moreover, the firm had no surveillance procedures or processes to review the rates of exchanges of its associated persons. The lack of supervisory systems and procedures relating to rates of exchanges was particularly unreasonable given that nearly 25 percent of the firm’s variable annuity transactions were exchanges
Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it failed to establish, maintain and enforce a supervisory system and written supervisory procedures (WSPs) reasonably designed to ensure that its registered representatives’ recommendations of variable annuities complied with applicable securities laws and regulations and FINRA rules.