Merrill Lynch Charged by SEC for Not Disclosing Foreign Exchange Fees

Merrill Lynch, Foreign Exchange Fees, Securities and Exchange Commission
Merrill Lynch, Foreign Exchange Fees, Securities and Exchange Commission report

Expanded release 2023–73
On this day in 2023, in Washington, DC—
Today, the SEC charged Merrill Lynch(ML), Pierce, Fenner & Smith Incorporated with paying more than $4 million in hidden foreign exchange fees for deposits and withdrawals for its advisory clients. Settlement terms include disgorgement, prejudgment interest, and a civil penalty of more than $9.5 million to be paid by ML and distributed to affected customers.

 What are Foreign Exchange Fees

Whenever a customer makes a purchase from an international business, the business may add an additional fee to the total in the form of a currency conversion fee, often known as a foreign currency conversion fee or foreign currency exchange fee. It can be done at the point of sale using a system called dynamic currency conversion, or it can be done by the payment processor when using a credit or debit card, or by the ATM network when using a debit card (DCC). It is frequently confused with a foreign transaction fee, which is a fee applied to the actual transaction.

Details about orders

According to the Securities and Exchange Commission’s order, Merrill Lynch provided investment advisory services, such as currency exchanges, for a fee to advisory customers between May 2016 and July 2020. Merrill disclosed markup or markdown on foreign currency exchanges in client agreements and brochures for the program, but it did not disclose an additional fee it called a production credit that was equal to or greater than the disclosed markup or markdown for more than 80% of the transactions.

Financial advisors at Merrill received a commission that was defined as a percentage of production credits. According to the SEC’s ruling, Merrill also failed to take measures reasonably calculated to ensure the accuracy of its statements on the fees it charged for currency exchanges.

The director of the SEC‘s New York Regional Office, Antonia M. Apps, emphasized the importance of investment advisers disclosing all fees associated with a service, not just parts of them. Although Merrill reported the markups or markdowns charged on foreign currency exchanges, thousands of clients were left in the dark as to an often significant difference between the markup and the markdown.” bigger fees were charged on these transactions and were charged millions of dollars in concealed costs.

The SEC found that Merrill broke Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and other rules, and Merrill agreed to the Securities and Exchange Commission’s decision. Without admitting or denying the SEC’s findings, Merrill agreed to a stop-and-desist order, a reprimand, disgorgement of about $4.1 million, prejudgment interest on that amount of $760,000, and a civil penalty of $4.8 million. Merrill Lynch has committed to compensating affected advisors’ clients.

Brian Kudon, Elizabeth Baier, and Sandeep Satwalekar led the SEC’s New York Regional Office investigation, which Thomas P. Smith Jr. oversaw.

Refrence taken from – Sec official website

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