Two broker-dealers were fined a total of US $950,000 by the Financial Industry Regulatory Authority for not adequately monitoring the handling of wire transfers from customer accounts to third parties. In connection with one broker-dealer, Scottrade, Inc., FINRA charged that, from October 2011 to October 2013, the firm failed to have any procedures that required customer confirmations for third-party wire transfers of less than US $200,000, and did not obtain customer approval through a supervisor who was not a producing manager, as required, when there were third-party wire transfers between US $200,000 and $500,000. During the relevant time the firm processed over 17,000 third-party wire transfers involving more than US $880 million. In 2011, FINRA cautioned Scottrade regarding its “deficient supervision” of third-party wire transfers. However, Scottrade did not upgrade its procedures, claimed FINRA, until October 2013. Scottrade settled its current FINRA disciplinary action without admitting or denying any findings by payment of a US $300,000 fine.
Compliance Weeds: Futures and securities brokerage firms should have rigorous procedures regarding the acceptance of funds from, or transmission of funds to, third parties not in the names of the accounts on their books – even if controlled by the same beneficial owner. Moreover, movement of funds and/or positions from one account to an account of a different beneficial owner – even at the same broker-dealer or futures commission merchant – other than for documented errors (and subject to non-production management sign-off) should be strictly proscribed.