FINRA fined a broker-dealer $550,000 for failing to properly monitor and detect red flags related to small cap securities traded via delivery versus payment accounts. According to FINRA, the respondent did not implement the same level of due diligence as it utilized with accounts held at the broker-dealer. FINRA also alleges that the firm failed to enhance its compliance procedures even after warnings from the SEC and its clearing firm. FINRA faults the firm for over-relying on branch managers to conduct surveillance and report red flags.
OUR TAKE: It’s never a good idea to rely on producers or their supervisors to monitor activities. They are not regulatory professionals, and they often have a significant conflict of interest with respect to activities that affect their compensation.