The Enforcement Actions Reference: SEC Charges Citigroup Subsidiaries for Regulatory Violations

The Securities and Exchange Commission (SEC) has taken action against Citigroup Global Markets, Inc. (CGMI) and Citi International Financial Services, LLC (CIFS) for their failure to adhere to the disclosure requirements under Regulation Best Interest (Reg. BI) and the delivery mandate of Form Client Relationship Summary (Form CRS) during specific periods in 2020 and 2021.

Violation of Disclosure Obligation

Between June 30, 2020, and March 31, 2021, CGMI and CIFS, both operating as broker-dealers, neglected their duty to provide necessary securities recommendations disclosures to retail customers, as mandated by Reg. BI.

Furthermore, they failed to deliver Form CRS, required from July 30, 2020, to March 31, 2021, to inform retail customers adequately.

Electronic Delivery Oversight

Despite the SEC’s clear guidance on electronic delivery outlined in Reg. BI and Form CRS releases, which discourage relying on implied consent for delivery confirmation, CGMI, and CIFS opted for electronic delivery, relying on implied consent for about 360,000 accounts of existing retail customers. This action was found to be in contravention of regulatory standards.

Delayed Compliance and Consequences

The order from the SEC reveals that CGMI and CIFS only initiated compliance in April 2021 by physically mailing the necessary disclosures and Form CRS to their existing retail customers.

However, by this time, significant securities recommendations had been made to around 13,600 customers without proper adherence to electronic delivery guidance, totaling approximately 31,600 recommendations.

Regulatory Sanctions

The SEC’s investigation concluded that CGMI and CIFS willfully violated Section 17(a)(1) of the Securities Exchange Act of 1934 and related rules.

Consequently, without admitting or denying the findings, both entities consented to a cease-and-desist order, censures, and agreed to pay a civil monetary penalty of $1,975,000 on a joint-and-several basis.

Supervision and Investigation

The investigation into these violations was led by Ibrahim Sajalieu Bah and supervised by Celeste A. Chase and Thomas P. Smith, Jr., from the New York Regional Office, underlining the SEC’s commitment to enforcing regulatory best practices and ensuring investor protection.