According to FINRA, Liberty Partners Financial Services, LLC was censured and fined $55,000 for violations related to Regulation Best Interest (Reg BI), net capital requirements, recordkeeping, and anti-money laundering compliance.

The Raleigh, North Carolina firm was found in violation of Reg BI by failing to establish adequate policies and procedures for recommendations of non-traditional exchange traded products (ETPs). These complex products, which include leveraged and inverse ETFs, carry significant risks and are generally designed for short-term trading rather than long-term investment.

The firm maintained no restrictions, approval processes, alerts, exception reports, or other supervisory tools for these products. This meant representatives could recommend these potentially risky investments without meaningful oversight to ensure the recommendations were in customers' best interests.

Additionally, the firm misclassified certain fees it was scheduled to receive from mutual fund issuers but were actually owed to firm representatives as allowable assets. This resulted in overstated net capital on the firm's books and FOCUS reports. The error caused the firm to be net capital deficient from July 31 through August 7, 2023, during which time it continued conducting securities business on five days.

The firm also failed to conduct independent testing of its anti-money laundering program and had no written AML policies regarding testing requirements. Independent AML testing is a critical safeguard that helps identify weaknesses in a firm's ability to detect suspicious activity.

Following these findings, the firm added procedures concerning non-traditional ETPs to its written policies, conducted independent AML testing, and updated its AML program.

This case illustrates how multiple compliance failures can compound. Investors should understand that complex products like leveraged ETFs require special attention and that firms have heightened obligations when recommending them.