FINRA recently fined Scottrade $600,000 to settle charges of failing to establish and implement an adequate antimoney laundering (AML) program to detect and trigger reporting of suspicious transactions, as required by the Bank Secrecy Act and FINRA rules. This action, together with an earlier FINRA action against two units of E-Trade, shows that FINRA will be skeptical toward AML programs of high-trading volume online brokers that do not use computerized surveillance tools to detect suspicious transactions and activity.
As a general matter, FINRA has advised firms that, in designing their AML programs, they should consider certain factors, including the technological environment in which they operate. FINRA also has specifically instructed online brokers to consider conducting computerized surveillance of account activity to detect suspicious transactions.
According to FINRA, Scottrade’s AML program lacked automated systems to monitor customer accounts for suspicious transactions. Instead, according to FINRA, Scottrade relied almost exclusively on internal personnel to identify and refer potentially suspicious activity to the firm’s risk management department, which relied solely on the AML compliance officer to investigate referrals to determine whether activity was suspicious and reportable. FINRA found, however, that neither the AML compliance officer nor anyone else at Scottrade specifically monitored transactions for potentially suspicious trading activity. FINRA also found that Scottrade’s AML procedures failed to provide adequate written guidance to its employees as to how to monitor and detect suspicious activity.
FINRA determined that the firm’s reliance on inadequate internal resources, along with the large volume of online trading activity, rendered the lack of automated systems to detect suspicious activity unreasonable. FINRA also determined that, when Scottrade subsequently implemented an automated system, the system had remained inadequate because it focused only on suspicious trading that was accompanied by suspicious money movement.