The Securities and Exchange Commission (SEC) has hit Merrill Lynch, Pierce, Fenner & Smith with fines and penalties for charging advisory clients more than $4 million in undisclosed foreign exchange fees for transfers to or from their accounts.
The SEC’s order said that between May 2016 and July 2020, Merrill Lynch offered programs to advisory clients in which clients paid the company a fee in exchange for a range of investment advisory services, including foreign currency exchanges.
However, while Merrill Lynch disclosed that it charged a markup or markdown on foreign currency exchanges, it did not disclose an additional fee, which it called a production credit. In more than 80 percent of the transactions, the credit was equal to or greater than the disclosed markup or markdown. Merrill Lynch referred to this charge as a commission in internal documents.
The SEC said that Merrill Lynch failed to adopt and implement policies and procedures reasonably designed to prevent its disclosures from being misleading about the fees it charged on foreign currency exchanges.
“Investment advisers must ensure that they do not selectively disclose some fees but not others relating to a particular service,” said Antonia Apps, director of the SEC’s New York Regional Office. “While Merrill Lynch disclosed the markups or markdowns charged on foreign currency exchanges, thousands of clients were left in the dark as to an often larger fee charged on these transactions and were charged millions of dollars in undisclosed fees.”
Merrill Lynch settled the charges, agreeing to pay disgorgement, prejudgment interest, and a civil penalty totaling more than $9.5 million. It also has agreed to distribute funds to harmed clients. In addition, without admitting or denying the SEC’s findings, Merrill Lynch agreed to a cease-and-desist order, a censure, and to pay disgorgement of approximately $4.1 million, prejudgment interest thereon of $760,000, and a civil penalty of $4.8 million.