On October 29, the Financial Industry Regulatory Authority (FINRA) entered into a Letter of Acceptance, Waiver, and Consent (AWC), fining a broker-dealer $2.75 million for identified deficiencies in its anti-money laundering (AML) program. According to FINRA, design flaws in the firm’s AML program allegedly resulted in the firm’s failure to properly investigate (i) certain third-party attempts to gain unauthorized access to its electronic systems, and (ii) other potential illegal activity, which should have led to the filing of Suspicious Activity Reports (SARs). FINRA notes that this failure primarily stemmed from the firm's use of an inaccurate “fraud case chart,” which provided guidance to employees about investigating and reporting requirements related to suspicious activity where third parties use “electronic means to attempt to compromise a customer's email or brokerage account.” Consequently, FINRA alleges that the firm failed to file more than 400 SARs and did not investigate certain cyber-related events. Among other things, FINRA also asserts that the firm failed to file or amend forms U4 or U5, which are used to report certain customer complaints, due to an overly restrictive interpretation of a requirement that complaints contain a claim for compensatory damages exceeding $5,000.
The firm neither admitted nor denied the findings set forth in the AWC agreement, but agreed to address identified deficiencies in its programs.