United States: Company pays FINRA fees for deficiencies in anti-money laundering program
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One company paid FINRA fees for failing to have a reasonable AML program designed to report suspicious transactions and for failing to reasonably respond to red flags associated with China-based accounts.
In a Letter of Acceptance, Waiver and Consent (“AWC”), FINRA stated that the basis of the company’s business was a self-managed trading platform that accepted accounts from clients located in jurisdictions with increased risk of money laundering, such as the People’s Republic of China. FINRA found that the company’s AML program had several shortcomings, which led the company to:
- failing to properly monitor potentially suspicious transactions;
- rely on a manual review of the daily blotter that did not reflect canceled order data or trading patterns between accounts or over multiple days; and
- choose not to file suspicious activity reports, even after discovering that customers were engaging in unexpected transactions.
According to the FINRA AWC, the oversight issues stemmed from AML procedures which failed, among other things, to: (i) identify exception reports, (ii) describe how it would monitor transactions, (iii) identify the designated principal who would review transactions, and (iv) specify how to document investigations of potentially suspicious activity. Additionally, FINRA found that the company failed to detect red flags of price manipulation attempts, such as (i) filing and trading many low volume stocks, (ii) foreclosure a significant number of order cancellations, and (iii) trading in a model of buy orders at progressively higher prices and sell orders at progressively lower prices.
As a result, the company was found to be in violation of FINRA Rules 3310 (a) (“Anti-Money Laundering Compliance Program”) and 2010 (“Business Honor Standards and Principles of Commerce”). To settle the charges, the company agreed to censorship, a fine of $ 350,000 and retain the services of an independent consultant to review and evaluate the company’s procedures and report the findings to FINRA.
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