Private securities regulator NASD last week announced that CCO Investment Services Corp., the investment-services arm of Citizens Bank, has agreed to pay fines totaling $850,000 to settle charges of “supervisory, record keeping, telemarketing [and] other violations.”
The fine relates in part to CCO’s sale of variable annuities to the elderly, for whom most experts agree they are not appropriate.
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More than half of CCO’s variable annuity sales in 2003 and 2004 were to elderly customers, a R.I. Department of Business Regulation probe found earlier this year. The DBR also found that CCO advisers had accepted meals, gifts and trips from wholesalers promoting annuities.
The NASD fine comes on top of an $800,000 fine already levied by the DBR and a $3 million penalty imposed by Massachusetts regulators in July of last year. It is based on a probe of the internal controls that CCO should have maintained; that probe found improprieties not only with regard to variable annuities, but also in the company’s sale of 529 college-savings plans.
NASD, a private-sector provider of financial regulatory services, said in a news release that CCO had failed “to establish, maintain and enforce a reasonably designed supervisory system and written procedures relating to a series of issues,” including customer suitability reviews, telemarketing compliance, internal inspections and correspondence reviews.
NASD said the fine was part of a settlement in which “CCO neither admitted nor denied the charges, but consented to the entry of NASD’s findings.”
The regulator ordered CCO to:
n Review its supervisory system and procedures for the preservation of data, including e-mails, customer suitability reviews, telemarketing, internal inspections and other items.
n Review the resources it devotes to compliance and recommend needed changes.
“Like any securities firm, bank-affiliated broker-dealers must have adequate supervisory systems and controls for ensuring compliance with regulatory requirements,” said James S. Shorris, NASD’s executive vice president and head of enforcement.
Asked for comment, Citizens provided a written statement by Kevin L. Fine, senior vice president and chief compliance officer for CCO:
“This settlement relates to past activities in our broker-dealer unit in 2003-2004,” he said. “Since that time, Citizens has taken significant steps to improve our systems and policies, which represent best practices for our industry and the best service for our customers.”
