Compliance Officer Settles FINRA Charges for AML Failures

A firm and its anti-money laundering ("AML") compliance officer settled FINRA charges for customer identification program, suspicious activity monitoring, recordkeeping and related supervisory failures.

According to the AWC, the firm failed to implement a reasonably designed Customer Identification Program ("CIP") to verify the identities of "hundreds of China-based, issuer- sourced customers who acquired shares in IPOs underwritten by the firm." FINRA found that the firm and its compliance officer "did not assess the identity verification risks posed by opening accounts for China-based, issuer-sourced customers, and they established only generic CIP procedures."

FINRA determined that the firm's AML compliance procedures "contained only a generic list of red flags." FINRA found that the compliance officer failed to (i) include "how to detect and report suspicious transactions related to the firm's investment business," (ii) "address the risks of opening issuer-sourced accounts in connection with ... IPOs;" (iii) "address how the firm would identify, investigate, or report AML red flags: during the account opening process; during IPOs and aftermarket trading; or during private placement offerings;" and (iv) "include risk-based procedures for conducting ongoing customer due diligence." FINRA said that the compliance officer never conducted an AML investigation concerning any of this activity.

Separately, FINRA found the firm failed to supervise and preserve business-related communications conducted through off-channel platforms, despite red flags that employees were using unauthorized communication methods, FINRA said the firm failed to take reasonable steps to prevent or monitor such activity.

As a result, FINRA determined that the firm violated SEA Rule 17a-4, ("Records to be preserved by certain exchange members, brokers and dealers") and FINRA Rules 3310 ("Anti-Money Laundering Compliance Program"), 3110 ("Supervision"), 4511 ("General Requirements") and Rule 2010 ("Standards of Commercial Honor and Principles of Trade").

To settle the charges, the firm agreed to (i) a censure, (ii) pay a $400,000 fine and (iii) retain an independent consultant to review its AML program. The Compliance Officer agreed to a three-month suspension from association with any FINRA member in all principal capacities and as an AML Compliance Officer. No monetary sanctions were imposed because he "demonstrated an inability to pay."