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FINRA Settlements Reveal Focus on Response to Red-Flags

Posted in Anti-Money Laundering, Broker-Dealer Regulation, FINRA Enforcement

Firms that let suspicious account activity go undetected have caught FINRA’s attention, and have paid for their oversight – or, indeed, lack of oversight — in the form of penalties and employee suspensions, as detailed in recently-publicized settlements. While, at first blush, each settlement – with Atlas One Financial Group, Firstrade Securities Inc. and World Trade Financial Corporation – may seem unrelated, underlying each is FINRA’s finding that the institution was on notice of highly suspicious account activity, and failed to put in place procedures to detect and halt that activity.

The three settlements, mentioned in the same FINRA release, detail the many circumstances that, according to FINRA, should cause institutions to take a second look at a particular transaction or customer. Perhaps the best example is that of the broker dealer that, after the Department of Justice froze customer accounts as part of an investigation into an Italian judicial bribery scheme, failed to close other customer accounts bearing the same name and mailing address.  Other examples include securities accounts that do not engage in securities transactions, accounts that have large, unexplained transactions outside the ostensible means of the accountholder, and accounts with trading activity that can only be explained by attempts to manipulate the market.

The primary takeaway from these settlements is that industry participants must be mindful not only of transactions they detect, but of those transactions FINRA thinks they should detect. Critical to addressing this concern will be for those institutions to continue to refine and develop their ability to catch suspicious activity – and to stop that activity – before FINRA does.

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