Under-Resourced Compliance Leads to $38 Million in Fines
A large internet-based broker was fined $38 Million by the SEC, FINRA and the CFTC for insufficient compliance resources resulting in a failure to file potentially hundreds of Suspicious Activity Reports. The SEC cites insufficient compliance staffing where only a single employee had responsibility for reviewing thousands of transactions. As part of the remediation, the firm increased compliance staffing by “many dozens.” The SEC accuses the firm of ignoring red flags such as rapid deposits and withdrawals, accounts where trading represented a substantial percentage of the security’s daily trading volume, and trading in securities subject to regulatory suspensions.
As a guideline, firms should spend at least 5% of revenues on compliance. The regulators will scrutinize your compliance allocations any time they find widespread failures indicating a systemic breakdown. Also, one place not to skimp is anti-money laundering and suspicious activity reporting under the Bank Secrecy Act, which provides for significant civil and criminal penalties.