Deposits, Executions, LiquidationsDeposits, Executions, Liquidations
Problem

Problem

Each FINRA member has its own setup and circumstances with respect to clients’ activities. Most of them use various vendors to monitor the movements in funds, securities and trading – albeit, separartely. As a result, broker-dealers can seldom review the aggregate picture of a client’s activity in one place to get a complete view of the aggregate activity, which could be suspicious or potentially maniputive. 

WHO: The purpose of the AML rules – as they apply to FINRA members – is to help detect and report suspicious activity including the predicate offenses to money laundering, such as securities fraud and market manipulation. Although AML rules are generally broad, broker-dealers understand that their monitoring responsibilities span across transfers of its clients’ funds, securities and trading activities.

Must-Know Rules

RULE REQUIREMENTS

The Bank Secrecy Act.

The BSA authorizes the Department of the Treasury to impose reporting and other requirements on financial institutions to help detect and prevent money laundering. Specifically, the regulations implementing the BSA require financial institutions to, among other things, detect and report suspicious activity.

The Bank Secrecy Act.
FINRA Rule 3310.

FINRA Rule 3310.

The main applicability of this FINRA rule outlines the general responsibility of the FINRA member to establish and implement policies, procedures, and internal controls reasonably designed to achieve compliance with the Bank Secrecy Act and the implementing regulations thereunder.

Firms Fined for Inadequate Influencer Marketing Supervision

Marketing Correspondence Review

In March 2024, M1 Finance was fined $850,000 for social media posts made by influencers on the firm’s behalf that were not fair or balanced, or contained exaggerated, unwarranted, promissory or misleading claims. This was first social media influencer-related FINRA Enforcement disciplinary action. As M1 Finance did not review or approve the content in its influencers’ posts prior to use or retain those communications, the findings also stated that M1 Finance failed to have a reasonable system…for supervising the communications that the firm’s influencers made on its behalf.

Marketing Correspondence Review

In April 2024, Cobra Trading, Inc. was fined $200,000 for findings that it paid influencers for promotional communications on social media platforms while the communications were not fair and balanced or made claims that were promissory. Cobra Trading did not review or approve influencers’ videos prior to their publication and did not maintain records of influencers’ videos or the dates they were used, but also failed to establish and maintain a supervisory system…to supervise its influencers’ retail communications.

Marketing Correspondence Review

In June 2024, TradeZero America was fined $250,000 for findings that its influencer communications were not fair and balanced and included exaggerated and promissory statements. Amongst the findings that the broker-dealer did not reasonably supervise its retail communications posted by influencers for compliance with FINRA Rule 2210(d)(1), the firm did not establish or maintain a supervisory system…to preserve records of influencers’ videos or their dates of use.

Must-Know Rules

RULE REQUIREMENTS

The Bank Secrecy Act.

The BSA authorizes the Department of the Treasury to impose reporting and other requirements on financial institutions to help detect and prevent money laundering. Specifically, the regulations implementing the BSA require financial institutions to, among other things, detect and report suspicious activity.

FINRA Rule 3310.

The main applicability of this FINRA rule outlines the general responsibility of the FINRA member to establish and implement policies, procedures, and internal controls reasonably designed to achieve compliance with the Bank Secrecy Act and the implementing regulations thereunder.

Essential Industry Regulations

FINRA Regulatory Notices and SEC Staff Bulletins

Relevant FINRA and SEC guidance includes:

Regulatory Notice 21-03

Regulatory Notice 21-03

FINRA Urges Firms to Review Their Policies and Procedures Relating to Red Flags of Potential Securities Fraud Involving Low-Priced Securities.

Regulatory Notice 19-18

Regulatory Notice 19-18

FINRA Provides Guidance to Firms Regarding Suspicious Activity Monitoring and Reporting Obligations.

SEC Staff Bulletin

SEC Staff Bulletin

Risks Associated with Omnibus Accounts Transacting in Low-Priced Securities.

SEC Investor Alert

SEC Investor Alert

Dormant Shell Companies.

SEC Risk Alert

SEC Risk Alert

 Compliance Issues Related to Suspicious Activity Monitoring and Reporting at Broker-Dealers.

AML Report Categories

The AML Report is subdivided into
the following categories

This view flags cash transactions within specific value ranges that suggest possible attempts to avoid legal reporting thresholds, commonly known as structuring.

This view flags significant sales (liquidations) of penny stocks following their transfer into an account, potentially indicating market manipulation or money laundering.

This view identifies instances of penny stocks being transferred out of an account, which could be a red flag for unusual activity.

This view flags transactions where similar amounts of money are moved in and out of an account in a short period, a possible sign of money laundering.

This view shows exceptions when the total number of transactions in a given window exceeds a predefined threshold, potentially indicative of attempts to hide illegal activities.

Solution

Solution

Knowtice Analytics’s AML Report aggregates the monitoring of client’s activity into a central platform, combining the securities deposits (DWACs, ACATs, DRSs, etc.), liquidation of those securities (i.e. executions) and wires in order to gain a complete picture of the activity for the purpose of identifying potentially suspicious activity across multiple client transactions.

The AML Report is designed to identify and categorize various types of suspicious financial activities by generating specific case descriptions. Each description is associated with a pattern of transactions that may indicate potential misconduct. Cases and their respective descriptions are automatically generated overnight and encompass activities identified on the alert date in relation to the past 30 or 90 days of account activity. A detailed view into each case facilitates a deeper understanding of the account's activities and supports effective decision-making in addressing and resolving potential issues of possible financial misconduct. 

The AML Report is subdivided into‍the following categoriesThe AML Report is subdivided into‍the following categories
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Frequently asked questions

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