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FINRA Disciplinary Action Against Banesto Securities, Inc. n/k/a Santander International Securities, Inc.

In March 2014, FINRA announced that Banesto Securities, Inc. n/k/a Santander International Securities, Inc. submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured and fined $650,000. Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that for seven years, it consistently failed to disclose to clients the purpose and nature of a custody fee.

The findings stated that at account opening, the firm notified clients of all fees charged through the use of a commission schedule that disclosed, among other things, that all clients were charged a custody fee. There was no description of the purpose or nature of the fee. Rather, clients were provided with the mathematical formula used to determine the amount of the fee. Clients were charged the fee at the beginning of each quarter, based on assets from the last day of the prior quarter. The client monthly account statements described the fee as an administrative fee or a fee-based brokerage charge, a term normally associated with accounts that collect all-inclusive wrap fees as compensation for transactions and investment advice. The use of two different terms for the same fee, neither of which accurately described the fee, created the potential for confusion as to the nature and purpose of the charge. All custody services were provided by the firm’s clearing firm, so the reference to the fee as a custody fee was misleading and inaccurate. The monies the firm collected from application of this fee were not for the purpose of paying custody expenses or compensation for investment advice and, as such, were inconsistent with NASD Rule 2430.

In addition, the findings also stated that the firm sent a letter to clients notifying them of an increase to the fee that only provided clients with 11 days of advance written notification prior to the change of the fee. As reflected in Notice to Members 92-11, such notice was inadequate in that customers should be provided with written notification at least 30 days prior to the implementation or change of any service charge. Certain customers were subjected to increased fees without being provided with current fee schedules that notified them of the change. The firm has since reimbursed those customers for the differential between the prior fee and the increased fee.

The findings also included that the firm has never had a supervisory system in place to review the reasonableness of fees and has never performed a reasonableness test concerning the fee charged on an individual account basis. The revenue generated from the custody fee regularly accounted for a significant percentage of the firm’s total revenue. In one year, the firm earned almost $2.5 million from the fee.