The bank agreed to the payment without admitting or denying the charges and says that it no longer offers the ETF product concerned.
The SEC says that Wells Fargo’s internal guidance noted that when single-inverse ETF products are held for longer than one day there is risk of large and unexpected losses, especially in a volatile market.
Inadequate policies
However, it said that the bank’s procedures during a seven year period were not reasonably designed to adequately prevent and detect unsuitable recommendations of these products.
The regulator was concerned about a lack of supervision and training of employees relating to the sale of single-inverse ETFs and that some of its brokers were unaware of the risk of holding the products long term, leading to recommendations to hold them for months or sometimes years.
“Firms must maintain effective compliance and supervisory programs to ensure that the securities they recommend are suitable for their clients,” said Antonia Chion, Associate Director of the SEC Enforcement Division. “As a result of Wells Fargo’s failure to meet these important obligations, some of its employees recommended complex instruments to retail investors who did not understand the risks involved.”
