A firm settled FINRA charges of failing to implement an adequate AML program for transactions involving low-priced securities and foreign financial institutions ("FFIs").
In a Letter of Acceptance, Waiver and Consent, FINRA stated that the firm failed to: (i) list "some of the most relevant" red flags involving low-priced securities; (ii) provide guidance about how to utilize AML exception reports; (iii) identify suspicious activity using a manual review process; and (iv) investigate alerts from its clearing firm or investigate why its own AML program failed to detect transactions that the clearing firm flagged. As a result, the firm violated FINRA Rules 3310(a) ("Anti-Money Laundering Compliance Program") and Rule 2010.
Additionally, FINRA found that the firm failed to (i) review 33 correspondent accounts for foreign financial institutions ("FFIs") and (ii) identify 15 of the 33 customer accounts as FFIs, even though the accounts were registered in the IRS's public Foreign Account Tax Compliance Act FFI Registration System. As a result, the firm violated FINRA Rules 3310(b) and 2010.
To settle charges, the firm agreed to a censure, to pay a $55,000 fine, and tp provide a certification of compliance with FINRA Rule 3310.
Commentary Christian Larson
The SEC recently issued a Staff Bulletin, covered here, emphasizing the risks associated with penny stocks and omnibus accounts held for FFIs. Broker-dealers engaged in penny stock business would do well to review that guidance.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
