SEC Charges Merrill Lynch for Failing to Disclose Foreign Exchange Fees to Clients

The Securities and Exchange Commission today charged Merrill Lynch, Pierce, Fenner & Smith Incorporated for charging advisory clients more than $4 million in undisclosed foreign exchange fees for transfers to or from their accounts. To settle the charges, Merrill Lynch has agreed to pay disgorgement, prejudgment interest, and a civil penalty totaling more than $9.5 million and has agreed to distribute funds to harmed clients.

The SEC’s order finds that, between May 2016 and July 2020, Merrill Lynch offered programs to advisory clients in which the clients paid Merrill a fee in exchange for a range of investment advisory services, including foreign currency exchanges. In the program’s client agreements and brochures, Merrill Lynch disclosed that it charged a markup or markdown on foreign currency exchanges, but it did not disclose an additional fee it referred to as a production credit, which, in more than 80 percent of the transactions, was equal to or greater than the disclosed markup or markdown. Merrill Lynch paid a percentage of these production credits to its financial advisors and referred to this charge as a commission in internal documents. The SEC’s order also finds 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.

Source: SEC.gov | SEC Charges Merrill Lynch for Failing to Disclose Foreign Exchange Fees to Clients