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‘If You See Something, Say Something’ – This Broker-Dealer Didn’t
Electronic Transaction Clearing ("ETC") agreed to pay a $250K fine to settle various FINRA charges, including the charge that it failed to implement AML policies, procedures, and internal controls reasonably expected to detect and cause the reporting of suspicious transactions, and reasonably designed to achieve compliance with the Bank Secrecy Act and the implementing regulations promulgated thereunder by the Department of the Treasury.
BACKGROUND. ETC, based in Los Angeles, CA, is a clearing and self-clearing firm that primarily utilizes an electronic order execution platform. ETC's primary business is to execute and clear orders on behalf of its clients. As part of its business, ETC provides direct market access to its customers. The firm has one branch and employs 21 registered persons. It became a FINRA member in 2009, and is also registered with the following exchanges: BATS, EDGA, EDGX, BX, PHLX, NQX, ARCA, NYSE-MKT, NYSE, and NSX.
In February 2016, ETC was charged by FINRA and certain exchanges with various trade surveillance and supervision violations. Those charges were resolved jointly with a separate AWC, with FINRA finding anti-money laundering ("AML") violations. The firm agreed to a $1Mn fine.
FINRA FINDINGS. From January 2013 through July 2015, a large percentage of the Firm's business consisted of accounts in which numerous traders used direct market access to trade under a master account number. In July and August 2014, ETC identified 30 situations in which certain of those traders participated in activity the Firm deemed to be sufficiently suspicious so as to cause the firm to restrict or prohibit the trader's trading activity. The suspicious activity included potential prearranged trading and transactions without an apparent economic purpose.
However, in those situations ETC did not take any further investigative steps to assess whether filing a Suspicious Activity Report ("SAR") was warranted – even though the firm had been notified shortly before that FINRA Enforcement was intending to bring charges for earlier identical violations.
ETC’s inaction constituted violations of FINRA Rule 3310, Anti-Money Laundering Compliance Program, which requires each member to develop and implement a written anti-money laundering program, and that such a program must, at a minimum, “Establish and implement policies and procedures that can be reasonably expected to detect and cause the reporting of transactions required under 31 U.S.C. 5318(g) and the implementing regulations thereunder; …”
For the record, ... FINRA’s case against ETC included additional charges pertaining to the following areas:
- Foreign Financial Institutions (FFIs);
- Net Capital, Customer Protection and Other Financial Issues;
- Omnibus Account Broker-Dealer Supervision Issues;
- Margin Procedures;
- Third Party Wires;
- New Account Procedures;
- Books and Records; and,
- Regulation SHO.
This case was reported in FINRA Disciplinary Actions for September 2017.
For details on this case, go to ... FINRA Disciplinary Actions Online, and refer to Case #2013037709301.