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Firm Settles FINRA Charges for AML Program Deficiencies

A firm settled FINRA charges for failing to establish a reasonable AML program designed to report suspicious transactions, and for failing to respond reasonably to red flags associated with China-based accounts.

In a Letter of Acceptance, Waiver, and Consent ("AWC"), FINRA stated that the basis of the firm's business was a self-directed trading platform that accepted accounts from customers located in jurisdictions with heightened money laundering risks, such as the People's Republic of China. FINRA found that the firm's AML program had several deficiencies, leading the firm to:

  • not properly surveil for potentially suspicious transactions;

  • rely on a manual review of the daily blotter that did not reflect cancelled order data or patterns of trading across accounts or over multiple days; and

  • elect not to file suspicious activity reports, even after it found customers engaging in unexpected transactions.

According to the FINRA AWC, the surveillance issues stemmed from AML procedures that failed to, among other things: (i) identify exception reports, (ii) describe how it would monitor transactions, (iii) identify the designated principal who would review transactions, and (iv) specify how to document investigations of potentially suspicious activity. In addition, FINRA found that the firm did not detect red flags of attempts to manipulate prices, such as (i) depositing and trading in numerous low-volume stocks, (ii) entering a significant number of order cancellations, and (iii) trading in a pattern of buy orders at incrementally higher prices and sell orders at incrementally lower prices.

As a result, the firm was found in violation of FINRA Rules 3310(a) ("Anti-Money Laundering Compliance Program") and 2010 ("Standards of Commercial Honor and Principles of Trade"). To settle the charges, the firm agreed to a censure, a $350,000 fine, and to retain an independent consultant to review and evaluate the firm's procedures and report the findings to FINRA.


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