Goldman Sachs Fined $700,000 for Failing to Deliver ETF Prospectuses
The name Goldman Sachs & Co. doesn’t always guarantee top-notch back-office quality, based on a $700,000 finding published over the weekend.
The top-tier investment bank and trading firm agreed to a censure and a fine of $700,000 for failing to deliver exchange-traded fund prospectuses to customers of over 100 introducing brokers that used its clearing systems and to its own primarily institutional customers for more than six years, according to the Financial Industry Regulatory Authority.
Goldman consented to the sanctions without admitting or denying the regulator’s findings that systems and supervisory lapses caused it to violate regulatory rules between June 2008 and October 2014.
The primary cause of the prospectus delivery problem was a design flaw that Goldman failed to identify when it rejiggered its trade processing systems in December 2009 to protect customer information, Finra said in a letter of acceptance, waiver and consent that Finra posted over the weekend.
The flaw was created when Goldman stopped using taxpayer ID numbers in the systems “to protect customer information,” according to the letter. The systems change left a blank field that effectively made all transactions in a particular ETF on a single day appear to have involved a single customer, excluding all other customers who bought the ETF from receiving a prospectus.
Goldman, which designed the system to avoid issuing duplicate prospectuses to repeat purchasers of a particular fund, did not discover the glitch until Finra staff raised questions about it in September 2014, according to l that Goldman signed.
Finra also found that some institutional customers for years did not receive prospectuses because of an operational error in which mailing labels were repeatedly sent by an outside vendor the wrong printing queue. And it identified a third flaw in the Goldman’s systems failure to trigger delivery signals because it did not recognize when changes or updates had been made to ETFs since a customer’s first purchase, according to Finra.
Goldman, which cleared over 100 million ETF purchases for customers over the more-than-six-year period identified by Finra, also agreed to certify to the self-regulatory group that policies, systems, training and procedures within its prime services clearing business are reasonably designed to achieve compliance with prospectus delivery rules.