September 12, 2022

Broker-Dealer Fined for AML Compliance, Supervision and Recordkeeping Failures

A broker-dealer settled FINRA charges for AML program compliance, supervision and communications recordkeeping failures.

In a Letter of Acceptance, Waiver, and Consent, FINRA determined that the broker dealer failed to (i) establish a reasonably designed AML program, (ii) implement its customer identification program ("CIP"), (iii) reasonably supervise for potentially manipulative trading and (iv) maintain business-related e-communications. FINRA found that the broker-dealer only conducted manual reviews of the daily trade blotter to identify suspicious trading, and that its review policies were limited to large-scale transactions - even though small transactions were most of the firm's business. FINRA found that the broker-dealer failed to investigate instances where customers placed buy and sell orders in the same security at the same time for the same limit price. Further, FINRA found that the broker-dealer failed to adequately investigate the issue - even after the potential misconduct was brought to its attention by FINRA and its routing broker in multiple instances - instead relying on unverified promises from the customers in question that they would cease any unreasonable activity.

FINRA also found that the broker-dealer failed to maintain certain instant messages and email communications sent by registered representatives and failed to document messages sent through the instant messaging service WeChat, as well as correspondence sent via the representatives' personal emails regarding securities-related business. FINRA said that the broker-dealer was aware that these communications were in progress but took no steps to preserve the conversations.

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

To settle the charges, the broker-dealer agreed to (i) a censure, (ii) a $450,000 civil monetary penalty and (iii) a two-year prohibition from providing market access and a suspension of related activities until it undergoes improvements to its supervisory systems.