FINRA Warns of Rising Trend in ACATS Fraud

FINRA warned its members of the rising trend in fraudulent customer account transfers through the Automated Customer Account Transfer Service ("ACATS").

In a Regulatory Notice, FINRA identified indicators of potential ACATS fraud, including (i) transfer requests to move assets to an external account shortly after assets were moved to a new brokerage account, (ii) transfer requests that are rejected repeatedly because of incomplete or incorrect information, and (iii) changes in customer communication patterns (e.g., a customer who typically communicates via telephone suddenly communicating only via email).

FINRA also highlighted several practices that firms can use to mitigate ACATS fraud risk, including:

• verifying customer identities for accounts established online through adequate supervisory systems and validating identifying information using technologies or the help of third-party service providers;
• verifying transfer requests by (i) being aware of red flags of forgery or falsification of signatures, (ii) engaging third-party vendors to identify misinformation on customer profiles, and (iii) reviewing the number of times a firm rejected a customer's request and for what reasons;
• improving review procedures of transfer requests by (i) notifying the customer when a transfer request had been received and (ii) working with operation staff assigned to the customer's account to verify the transfer request; and
• being aware of anti-money laundering fraud and taking steps to report potential fraud.