Online broker-dealers using manual systems to monitor suspicious securities transactions for anti-money laundering (AML) compliance may need to rethink their approach.
On January 2, 2009, FINRA announced that it had fined two units of an online broker-dealer (E*Trade) $1 million to settle charges of failing to establish and implement AML policies and procedures that could reasonably be expected to detect and cause the reporting of suspicious securities transactions.
According to FINRA, E*Trade’s AML program lacked automated electronic systems specifically designed to detect potentially manipulative trading activity in customer accounts. Instead, E*Trade relied on analysts and other employees to manually monitor for and detect suspicious trading activity without, in FINRA’s view, providing them with sufficient automated tools. FINRA determined that this approach to suspicious activity detection was “unreasonable,” given the large volume of online trading activity, and concluded that E*Trade had violated applicable rules. E*Trade consented to the entry of FINRA’s findings without admitting or denying the charges.
While FINRA has instructed all broker-dealers to consider generally the technological environment in which they operate, this administrative action suggests that the use of computerized surveillance tools to detect suspicious transactions and activity may no longer be optional for online broker-dealers that have high trading volume.