FINRA Fines “Gatekeeper” Clearing Firm $1 Million for Compliance Failures

FINRA fined a clearing
firm $1 Million for a variety of compliance breakdowns around anti-money
laundering, financial reporting, supervision, and email reviews.  FINRA cited “multiple violations” and a “weak
compliance culture” discovered during multiple examinations from 2009 to
2013.  The firm changed ownership in
2012.  Brad Bennett, FINRA’s Enforcement
Chief, said that a clearing firm was a “gatekeeper to the securities markets,”
making it “imperative that the firm meet its critical supervisory and control
obligations.”  According to FINRA, the
firm failed to implement a system to identify customer AML “red flags,”
utilized a “defensive SARS” program whereby the firm filed Suspicious Activity
Reports without an underlying investigation, and made numerous financial
reporting errors in its customer reserve calculations.  In addition to the fine, FINRA is also
requiring the firm to retain an independent compliance consultant, submit any
new clearing agreement to FINRA for approval, and file CEO and CFO
certifications concerning its net capital and customer reserve
computations. 

OUR TAKE: This case is
notable for three reasons: (1) FINRA holds the new owners accountable for
actions occurring at the predecessor firm; (2) FINRA cites a higher duty of
care for market “gatekeepers” such as clearing firms, and (3) FINRA faults the
firm for its “defensive SARS” concept where the firm blindly files reports
without an investigation.   

http://www.finra.org/Newsroom/NewsReleases/2013/P408614