Firm Fined for Failing to Implement Effective AML Program
Commentary by Jeff Ziesman
A firm settled FINRA charges for failing to maintain an anti-money laundering ("AML") compliance program designed to detect and report suspicious transactions involving low-priced securities.
In an AWC letter, FINRA found that the firm relied solely on manual trade blotter reviews that lacked the detail necessary to identify potentially suspicious trading activity. As a result, FINRA said that the firm failed to detect coordinated trading between two customers in a thinly-traded low-priced security. FINRA also found that the firm did not use exception reports that could have highlighted suspicious patterns in the transactions.
FINRA found that the firm failed to establish effective AML procedures, violating FINRA Rules 3310 ("Anti-Money Laundering Compliance Program") and 2010 ("Standards of Commercial Honor and Principles of Trade").
To settle the charges, the firm agreed to (i) a censure, (ii) pay a $50,000 fine, (iii) remediate the deficiencies and (iv) certify that it has implemented a reasonably designed AML program within 90 days.
Commentary
Regulators expect financial institutions to use automated surveillance tools, when possible, for (among other things) transactional review as well as money movements. Such tools effectively and efficiently identify individual transactions or trends involving questionable activities, which could be connected to unsuitable transactions, fraud or attempted money-laundering.
In this matter, FINRA found the firm's manual review of transactions deficient, which failed to detect potentially manipulative trading. Moreover, FINRA found the firm's procedures inadequate because it did not specify, with the necessary particularity, how the reviews were to be conducted. The fine imposed is significant, considering the relative size of the firm.