Broker-Dealer Settles FINRA Charges Over Flawed AML Monitoring Rules

A broker-dealer settled FINRA charges for failing to maintain an anti-money laundering program reasonably designed to detect and report suspicious transactions.

According to the AWC, the firm's wealth management division introduced three automated transaction monitoring rules in February 2016 that were misconfigured from the outset. FINRA found (i) the first rule meant to flag accounts with fund movement but no securities trading was set to track margin balances instead of account balances; (ii) the second rule meant to catch matching credit and debit transactions had its credit threshold set too high to generate useful alerts; and (iii) the third rule meant to flag internal transfers indicating possible unauthorized third-party activity generated excessive false positives by capturing routine transfers between related accounts.

FINRA found that the firm split responsibility for assessing rule effectiveness and decommissioning ineffective rules between two separate groups, but had no procedures requiring those groups to coordinate or escalate concerns. As a result, FINRA determined that the three deficient rules remained active from February 2016 through September 2023, and the firm failed to identify, investigate, or report suspicious transactions the rules were designed to capture.

The firm consented to findings that it violated FINRA Rules 3310(a) and 3310(f)(ii) ("Anti-Money Laundering Compliance Program") and FINRA Rule 2010 ("Standards of Commercial Honor and Principles of Trade").

The firm agreed to a censure and a $275,000 fine.