FINRA Sanctions Firm for Failing to Register and Supervise Foreign Personnel (with Lofchie Comment)

FINRA fined Monex Securities Inc. and ordered the firm to disgorge commissions for permitting unregistered foreign individuals to sell securities on the firm's behalf and related supervisory deficiencies.

FINRA found that the Monex Securities CEO executed an agreement on behalf of Monex with its parent company in Mexico that permitted numerous employees to conduct securities business on Monex's behalf. The employees, among other things, collected client information needed to open accounts, made investment recommendations to clients and transmitted orders.

FINRA found that the U.S. broker-dealer paid directly to these individuals transaction-related compensation for these efforts, however, none of the individuals were registered in any capacity with FINRA. Additionally, FINRA found that Monex Securities failed to establish, maintain and enforce supervisory systems and written procedures to ensure compliance with applicable securities laws and regulations.

Lofchie Comment: The U.S. broker-dealer clearly violated the law by making payments directly to non-U.S. individuals who were not registered as associated persons of the U.S. broker-dealer. Had the U.S. broker-dealer instead simply split commissions as to the non-U.S. customers with its affiliated non-U.S. broker-dealer, and allowed its affiliate to determine how to compensate its own non-U.S. employees who were dealing with non-U.S. customers, it is likely that much of the conduct that is described in the complaint would have been permissible. The other violation is that the U.S. broker-dealer did not conduct any AML diligence. That said, the FINRA documents do not provide a sufficient description to be certain that curing the payment arrangements and conducting AML diligence would have addressed all of the relevant issues.