FINRA Fines GMS Group $35,000 for Supervisory Failures and Reg BI Compliance Lapses

The Financial Industry Regulatory Authority (FINRA) has censured The GMS Group, LLC and imposed a $35,000 fine after finding that the New Jersey-based brokerage firm failed to establish and enforce adequate written supervisory procedures, in violation of U.S. securities regulations.

The disciplinary action was formalized through a Letter of Acceptance, Waiver and Consent, which FINRA accepted without GMS Group admitting or denying the regulator's findings.

According to FINRA, the firm did not maintain policies reasonably designed to ensure compliance with Regulation Best Interest (Reg BI) between June 2020 and October 2023. The regulator said GMS Group's initial Reg BI implementation consisted of little more than a brief internal memorandum.

FINRA found that the firm's written supervisory procedures made no meaningful reference to Reg BI until late 2020, despite the regulation coming into effect earlier that year. As a result, the firm lacked processes necessary to meet Reg BI's Care Obligation.

Specifically, the regulator determined that GMS Group failed to establish procedures for assessing costs, evaluating reasonable alternatives or documenting how recommendations were made in a customer's best interest. FINRA also found that the firm did not adequately address conflicts of interest.

The firm's supervisory framework lacked any system for identifying, disclosing or mitigating incentives that could bias recommendations made to retail clients. FINRA said there were no procedures in place to prevent, detect or correct Reg BI violations.

In addition, GMS Group failed to maintain adequate supervisory systems as required under FINRA Rule 3110 and Municipal Securities Rulemaking Board (MSRB) Rule G-27.

FINRA also found deficiencies related to Form CRS, the customer relationship summary introduced in 2020. Until October 2023, the firm had no written procedures governing the preparation, delivery, updating or recordkeeping of Form CRS, nor had it assigned supervisory responsibility for ensuring compliance.

The regulator noted that GMS Group updated its supervisory procedures last year, following the period covered by the findings.