FINRA Fines Brokerage Firm $5.75M for Lax Anti-Money Laundering Program

On December 28, FINRA entered into an acceptance, waiver, and consent (AWC) agreement with a Puerto-Rican-based brokerage firm based upon allegations that the firm’s anti-money laundering (AML) program “was not reasonably designed to achieve and monitor compliance with the requirements of the Bank Secrecy Act.” In deciding to levy a $5.75 million fine, FINRA noted, among other things, that the firm improperly “relied on manual supervisory review of securities transactions” that was “not sufficiently focused on AML risks.” The firm neither admitted nor denied the findings set forth in the AWC agreement, but agreed to address deficiencies in their AML program within 180 days. According to a firm spokeswoman, the firm is “pleased to have this matter from 2013 resolved and we continue to improve, manage and monitor our AML efforts.”

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N.Y. Attorney General’s Office, SEC and FINRA Assess Penalties, Fines Against Securities Firm Over Dark Pool Access Disclosures

On December 16, N.Y. Attorney General Eric Schneiderman announced a $37 million settlement against a major securities firm following its joint investigation with the Securities and Exchange Commission (SEC) into allegedly false statements and omissions made by the firm in connection with the marketing of its electronic order routing services, known as its “Dark Pool Ranking Model.” As explained by Attorney General Schneiderman, “Electronic order routing systems that route investor orders to various markets, including dark pools, are a part of modern equities trading, and companies that promote their routing capabilities must do so truthfully.” As part of the agreement, the firm admitted that it misled investors and violated New York State and federal securities laws; its conduct was also censured by both regulators.

That same day, FINRA announced its decision to fine the same firm $3.25 million for failing to disclose accurate information to all clients about services and features of its alternative trading system (ATS). In Form ATS filings with the SEC, the firm represented that all ATS users would have “identical access” to the system’s services and features. However, FINRA found that some ATS users, including high-frequency traders, were provided with more information than others and received services not available to others. The firm settled without admitting or denying the charges.

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FINRA Fines Credit Suisse over Anti-Money Laundering Policies

In a December 5 press release, FINRA announced that it has fined Credit Suisse Securities (USA) LLC $16.5 million for anti-money laundering (AML), supervision and other violations. FINRA’s determination and penalty were based primarily on two deficiencies in the investment bank’s suspicious activity monitoring program. First, Credit Suisse relied too heavily on its registered representatives “to identify and escalate potentially suspicious trading, when, in practice, such high-risk activity was not always escalated and investigated, as required.” And, second, FINRA found that the firm failed to properly implement its automated surveillance system to monitor for potentially suspicious money movements.

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FINRA Elects New Chairman of Board of Governors

On July 15, the FINRA Board of Governors elected John J. Brennan as its new Chairman. Effective August 15, Brennan will succeed Richard G. Ketchum, who previously announced his retirement.

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POSTED IN: Miscellany, Securities

FINRA Releases 2016 Regulatory and Examination Priorities Letter

On January 5, FINRA released a letter regarding its regulatory and examination priorities for 2016. The letter focuses on the following three broad issues within the securities industry: (i) culture, conflicts of interest and ethics; (ii) supervision, risk management and controls; and (iii) liquidity. Regarding FINRA’s assessment of firm culture, the letter notes that FINRA “will focus on the frameworks that firms use to develop, communicate, and evaluate conformance to their culture,” assessing five specific indicators of a firm’s culture, including (among others) whether policy or control breaches are tolerated. In connection with supervision and risk management, FINRA will focus its examination efforts on the following four areas that continue to affect firms’ business conduct and market integrity: (i) management of conflicts of interest; (ii) technology; (iii) outsourcing; and (iv) anti-money laundering. Finally, in connection with liquidity, FINRA plans to review firms’ contingency funding plans as they relate to their business models, noting that the framework for FINRA’s reviews will be driven by the effective practices contained in Regulatory Notice 15-33. Additional areas of regulatory and examination focus for FINRA in 2016 will include but are not limited to: (i) protecting seniors and vulnerable investors from fraud, sales practice abuse, and financial exploitation; (ii) private placements and Regulation A+ public offerings; (iii) financial and operational controls concerning exchange-traded funds and fixed-income prime brokerage; and (iv) market integrity.

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