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Regulatory Sanctions

Auditor Pays $1Mn Fine After Merrill Violated SEC Customer Protection Rule

August 3, 2017

PricewaterhouseCoopers (PwC) agreed to pay a $1 million fine to settle PCAOB charges that the accounting firm conducted a flawed audit into Merrill Lynch's compliance with federal brokerage customer protection rules. The SEC's Customer Protection Rule requires a broker-dealer to hold certain customer securities in lien-free segregated accounts to protect them from creditor claims should the broker's business fail.


For its fiscal year 2014, Merrill Lynch originally reported that it had complied with the rule and that its internal control over compliance with the rule was effective. Yet, the Public Company Accounting Oversight Board found that, in February 2015, PwC issued audit and examination reports without obtaining sufficient evidence about Merrill's compliance assertions, as required by PCAOB auditing and attestation standards.


Sixteen months later, in June 2016, the SEC found that for several years - including fiscal year 2014 - Merrill Lynch had been holding tens of billions of dollars of its customers' fully paid and excess margin securities in accounts that were subject to liens by 3rd parties, also in violation of the Customer Protection Rule.


BofA Merrill Lynch ended up paying $415 million to settle the SEC charges.