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Bank-Affiliated BD Hit with a $13 Million Fine for AML Monitoring Flaws

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.


BD Fined $16.5 Million for Under-Resourcing AML Compliance


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.