BD Will Pay $1 Million for Technical Violations of CIP Rule
A broker-dealer agreed to pay a $1 Million fine and appoint an independent consultant for failing to collect the necessary customer information from beneficial customers trading through an omnibus account established by its foreign bank affiliate. The SEC asserts that the BD should have treated the beneficial holders as “customers” as defined by the Bank Secrecy Act’s Customer Identification Program rule because the underlying beneficial holders interfaced directly with BD personnel. The CIP rule requires the collection of due diligence and customer identification information. Although the SEC did not allege any money laundering activity or client harm, Eric Bustillo, Director of the SEC’s Miami Regional Office, explained, “While no fraud occurred in this instance, our investigation found there were significant holes in the framework of [the BD’s] CIP that left the firm susceptible to illegal activity by customers who were not fully known.”
OUR TAKE: Technical violations can result in large penalties even without allegations of wrongdoing, illegal activity, or client harm. If FinCEN gets its way, these rules will soon apply to RIAs.