The US Financial Industry Regulatory Authority has ordered Barclays Capital Inc to pay restitution, including interest, to customers for failing to transact mutual fund-related operations, including switches, in a way that was suitable for its retail clients.

The restitution came to more than $10 million and Barclays was also censured and fined $3¾ million. Broker-dealers are obliged to evaluate any recommendation they might think of making to switch mutual funds by having regard to the net investment advantage to the investor in question. FINRA noted that “switching among certain fund types may be difficult to justify if the financial gain or investment objective to be achieved by the switch is undermined by the transaction fees associated with the switch.” A mutual fund switch involves one or more mutual fund redemption transactions coupled with one or more related mutual fund purchase transactions.

FINRA found that between January 2010 and June 2015, Barclays’ supervisory systems were not good enough to prevent unsuitable switching. It said that the firm incorrectly "defined a mutual fund switch in its supervisory procedures to require three separate transactions within a certain time frame," whatever that means. This done, it then failed to act on thousands of automated alerts 'for' (a word that FINRA might be using to mean 'betraying') potentially unsuitable transactions, failed to weigh up transactions for their suitability and failed to send letters to customers about the transaction costs. As a result, during the five-year period, there were more than 6,100 unsuitable mutual fund switches resulting in approximately $8.63 million-worth of losses to customers.

FINRA also found fault with Barcap's evaluation of customers' investment objectives, tolerance of risks and account holdings. During a six-month look-back review, 1,723 mutual fund transactions (39% of the whole) were found to be unsuitable, with 343 customers suffering more than $800,000 in losses, including realised losses.

During the same five years, Barclays’ failed to 'aggregate' purchases properly to provide eligible customers with breakpoint discounts. A six-month look back review found that the firm failed to provide eligible customers with discounts in 98 Class A share mutual fund transactions.

Barclays neither admits nor denies the charges but has, in FINRA's phrase, "consented to the entry of FINRA’s findings," although the regulator does not say where those findings have been entered or what kind of law requires someone to consent to someone's right to find something out.