On May 8, FINRA announced that it fined three firms a combined $900,000 and suspended four executives for allegedly failing to establish and implement adequate anti-money laundering programs. Specifically, FINRA claims that investigations into the three firms revealed that (i) one firm failed to identify suspicious account activity or did not adequately investigate numerous AML “red flags” and that certain of the firm’s customers’ accounts engaged in a pattern of activity consisting of moving millions of dollars through the accounts while conducting minimal-to-no securities transactions, (ii) a second firm that specialized in online trading and catered to the Chinese community failed to implement an AML program adequate to detect and report suspicious transactions, including potential manipulative trading, and (iii) a third firm failed to create and enforce a supervisory system and written procedures to monitor for unlawful transactions in unregistered penny stocks and failed to establish a program reasonably designed to monitor for and report suspicious activity. The suspended executives included two chief compliance officers who failed to fulfill obligations to monitor in accordance with AML requirements, and two owners. The suspensions range from three to nine months. The firms and the executives did not admit to the allegations, but agreed to pay the fines to resolve the investigation.
On May 22, FINRA announced that it was selected by Direct Edge, the third largest U.S. stock exchange operator, to provide market surveillance services on behalf of Direct Edge’s two licensed stock exchanges. The agreement extends FINRA’s surveillance oversight to more than 90% of U.S. equities trading volume. With this agreement, all of Direct Edge’s third-party regulatory services will be consolidated with FINRA.
On January 26, the Financial Industry Regulatory Authority (FINRA) issued Regulatory Notice 12-05, notifying institutions of an increase in reports of customer funds being stolen through improper access to customer email accounts and unauthorized electronic instructions to transfer or withdraw funds. FINRA urged firms to review policies and procedures to ensure protection of customer funds, particularly in cases where the request for funds and transmittal are handled electronically. FINRA recommends that policies and procedures include methods for confirming the identity of the requestor, as well as a system to identify and respond to “red flags.” Concurrent with the regulatory notice, FINRA issued an alert to investors warning about the increased account breach activity and providing tips for protecting account information and funds.