According to FINRA, First Southern, LLC, a Guaynabo, Puerto Rico-based broker-dealer, was censured and fined $250,000 for multiple compliance failures, including inadequate policies for Regulation Best Interest (Reg BI) and inaccurate net capital records.
Reg BI requires broker-dealers to act in the best interest of retail customers when making securities recommendations. FINRA found that while First Southern's written supervisory procedures addressed Reg BI in general terms, they largely restated the rule without providing reasonable procedures to prevent, detect, or correct violations—particularly regarding the firm's municipal securities activities.
The firm also maintained inaccurate books and records related to its net capital calculations. When participating in firm commitment municipal securities offerings, First Southern used a blanket seven percent haircut instead of applying the correct maturity-specific and CUSIP-specific haircuts required by regulation.
This miscalculation meant the firm inaccurately determined its open contractual commitment charges. Since January 2020, the firm's general ledger, net capital computations, and at least 29 FOCUS reports understated the firm's actual excess net capital.
The firm's supervisory procedures did not address how to properly account for open contractual commitments in municipal securities offerings or provide guidance on applying correct haircuts.
FINRA also found that First Southern failed to timely report accurate information to the Real-time Transaction Reporting System (RTRS) for municipal securities transactions. The firm's practice of bulk reporting transactions at market close resulted in customer trades being reported more than fifteen minutes after corresponding dealer trades.
The firm had no supervisory process to review reporting accuracy and did not designate anyone responsible for timely RTRS reporting.
This case demonstrates how multiple compliance failures can compound. Firms must have specific, actionable procedures—not just rule restatements—to ensure compliance with investor protection requirements.
