The SEC fined a large bank-affiliated broker-dealer $13 Million for weaknesses in its anti-money laundering program and for failing to file suspicious activity reports over a 5-year period. The SEC faults the firm for utilizing a patchwork monitoring system across its large enterprise that often failed to monitor certain accounts and uncover potential money laundering activity. The SEC raised specific concerns about transactions in brokerage accounts that utilized banking services such as ATMs, check-writing, and wire transfers. The firm also failed to quickly remedy some of the AML monitoring issues that it self-identified.
OUR TAKE: As firms get larger (especially through acquisition), account monitoring and AML management becomes much more difficult. Larger firms should consider appointing an enterprise-wide AML czar to take control of all monitoring activities.
The SEC filed insider trading charges against an investment bank VP who worked in the risk management department and received material nonpublic information as part of his duties to provide technical information to support internal committees. According to the SEC, the defendant learned inside information about a pending going-private transaction when he was copied on an email intended for the firm’s Debt Loan Committee and those that supported its functioning. The SEC alleges that the risk management VP used undisclosed personal brokerage accounts in his name and his wife’s name to trade call options and stock in the target, thereby collecting over $40,000 in ill-gotten gains. In addition to the SEC’s civil charges, the U.S. Attorney has filed a parallel criminal action.
OUR TAKE: It hurts all compli-pros when a risk management professional misuses his position and access to engage in unlawful activity. Who can you trust? Presumably nobody, which is why nobody should be exempt from oversight and testing.
FINRA fined a large broker-dealer $16.5 Million for failing to devote sufficient resources to anti-money laundering compliance. According to FINRA, the firm’s AML monitoring analysts were “negatively impacted by the level of resources dedicated by the firm to AML surveillance.” With respect to exceptions generated by an automated system, FINRA claims that the internal staff was overwhelmed: “The number of analysts employed by the firm at any time (ranging from 3 to 5) did not have the ability to adequately review the tens of thousands of alerts generated.” FINRA also faults the firm for mis-programming an automated surveillance system and for over-relying on sales traders to report suspicious AML activities when most order flow came into the firm electronically.
OUR TAKE: The regulators have increasingly examined the level of resources devoted to compliance monitoring as an indication of a firm’s commitment to compliance. While every firm must assess its own needs, firms should spend no less than 5% of revenue on compliance monitoring.