During the past decade, through Notices to Members and repeated and frequent public disciplinary actions, FINRA has placed broker-dealers on notice that failures to comply with email retention and review requirements and failures to implement and enforce adequate anti-money laundering policies and procedures were considered serious violations and would be focused on by FINRA’s Department of Enforcement. In May 2013, settlements by LPL Financial LLC and a trio of lesser-known member firms underscored FINRA’s resolve to address these issues.
LPL consented to a $9 million fine based on FINRA’s findings that LPL’s email system suffered from 35 separate failures over five years, which in turn caused it to be unable to access hundreds of millions of emails, and also prevented supervisory review of tens of millions of others.5 The firm’s failures also prevented it from producing email to FINRA examiners and other law enforcement officials on request, as required by SEC Rule 17a-4, and to litigants and customers in arbitration proceedings. The firm also agreed to establish a $1.5 million fund to compensate customers affected by such failures. The settlement serves as a reminder that as a firm grows in size and its systems become larger and more complex, the compliance infrastructure employed by the firm must also adapt to keep pace with the firm’s regulatory obligations.
Also in May, FINRA simultaneously announced settlements with three firms, Atlas One Financial Group, LLC, Firstrade Securities, Inc., and World Trade Financial Corporation, based on findings that the firms failed to establish and implement adequate AML programs to detect and report suspicious transactions.6 Atlas One was fined $350,000, Firstrade was fined $300,000, and World Trade Financial was fined $250,000. Certain individual compliance officers and supervisors were also sanctioned. Each settlement stemmed from situations where the firms failed to identify suspicious activities of customers despite the existence of “red flags.” As AML compliance continues to be a priority item for FINRA examiners, firms would do well to re-assess whether their policies and procedures — and equally important, the amount of staff resources devoted to review and follow-up of potentially suspicious transactions, leading to the filing of timely SARs — are sufficient based upon the amount of activity, and risk, presented by their customers.