BD Pays $4 Million for Failing to Enforce Credit Limits
A large broker-dealer agreed to pay a $4 Million fine for violating the Market Access Rule by raising a rogue trader’s credit limit without proper due diligence. The SEC alleges that the respondent’s Written Supervisory Procedures did not “reasonably guide [respondent’s] personnel in determining whether to modify the customer credit thresholds.” The Market Access Rule (15c3-3) requires broker-dealers to “establish, document, and maintain a system of risk management controls and supervisory procedures reasonably designed to manage the financial, regulatory, and other risks associated with providing customers access to the markets.”
OUR TAKE: A firm’s WSPs or Compliance Procedures should specify the criteria that employees should consider when making risk decisions as well as their course of action. Additionally, the WSPs and compliance manual rules are not mere guidelines that firms can ignore when pursuing outsized profits. Failure to follow your own procedures could result in significant liability.