FINRA Fines Firm for AML and Supervision Violations

FINRA fined a financial institution for anti-money laundering ("AML") and supervision violations. The compliance failures facilitated the illegal distribution of at least 55 million unregistered shares of securities.

FINRA found:

• though "the firm relied primarily on its registered representatives to identify and escalate potentially suspicious trading including in microcap stock transactions," in practice, "high risk activity was not always escalated and investigated, as required"; and

• the firm's automated surveillance system that monitored potentially suspicious movement of money was not implemented properly.

In particular, FINRA asserted that (i) a significant portion of the data that was fed into the system contained incomplete information or had other issues that compromised the system's effectiveness, (ii) the firm chose not to utilize certain available scenarios that were designed to identify common suspicious patterns and activities, and (iii) the firm failed to adequately investigate activity identified by "scenarios" implemented into its automated surveillance system. FINRA concluded that the firm's procedures were insufficient to monitor and investigate the sale of up to 55 million shares of microcap securities, including sales through non-U.S. affiliates. In addition, FINRA found that the firm made insufficient efforts to determine whether the shares sold were subject to a Securities Act registration requirement.