FINRA Fines Firm for AML and Trade Confirmation Failures

A firm settled FINRA charges for failing to implement a reasonable anti-money laundering compliance program and for deficiencies in trade confirmation disclosures.

According to the AWC, the firm onboarded "hundreds of new customers domiciled in high-risk foreign jurisdictions," but did not establish an AML program reasonably designed to "detect and report suspicious transactions." FINRA found that the firm identified various red flags, but failed to provide adequate guidance on "what exception reports or account activity should be reviewed, how patterns of unusual activity were to be detected, or how to investigate and document investigations of unusual activity or red flags."

FINRA found that the firm relied on a "manual review of hard copy blotters" to detect suspicious activity, rather than implementing automated or risk-based monitoring. As a result, FINRA concluded that the firm failed to detect potentially suspicious transactions, including "numerous offsetting transactions" with no apparent business purpose and large third-party wire transfers involving financial secrecy havens.

FINRA found that the firm's AML compliance program lacked "appropriate risk-based procedures for conducting ongoing customer due diligence," with unclear guidelines on (i) identifying high-risk accounts, (ii) conducting additional due diligence and (iii) understanding customer relationships, particularly for those linked to high-risk jurisdictions, shell companies, or FBI investigations.

Further, FINRA said the firm failed to "disclose the mark-up or mark-down on over 2,000 customer confirmations" and did not ensure compliance with trade confirmation requirements. FINRA said the firm required representatives to manually enter "prevailing market price information" for certain corporate debt transactions, but they failed to do so, resulting in missing disclosure information on trade confirmations.

FINRA determined that the firm violated FINRA Rules 3310 ("Anti-Money Laundering Compliance Program"), 2232 ("Customer Confirmations"), 4511 ("General Requirements"), 3110 ("Supervision") and 2010 ("Standards of Commercial Honor and Principles of Trade").

To settle the charges, the firm agreed to (i) a censure and (ii) pay a $100,000 fine.