Two E*Trade units have been hit with a $1 million fine for anti-money laundering (AML) policy and procedure failures by the Financial Industry Regulatory Authority (Finra) which says the online brokerage failed to implement automated electronic systems.
Finra says that, between 1 January 2003 and 31 May 2007, E*Trade Clearing and E*Trade Securities "did not have an adequate AML program based upon its business model".
The regulator says E*Trade's units did not establish and implement AML policies and procedures "that could reasonably be expected to detect and cause the reporting of suspicious securities transactions".
E*Trade relied on analysts and other employees to manually monitor for suspicious trading activity without providing them with sufficient automated electronic systems.
This approach "was unreasonable", says Finra, which has instructed online firms like E*Trade to "consider conducting computerised surveillance of account activity to detect suspicious transactions and activity."
"Brokerage firms' AML programs must be tailored to their business models," says Susan Merrill, chief of enforcement, Finra. "In this case, while E*Trade provides its customers with on-line, self-directed electronic access to the securities markets, its AML program lacked automated electronic systems specifically designed to detect potentially manipulative trading activity in customer accounts."
E*Trade neither admitted nor denied the charges, but consented to the entry of Finra's findings.
The fine comes months after E*Trade agreed to pay $1 million to settle Securities and Exchange Commission (SEC) claims that its units failed to comply with US AML regulations.
According to the SEC, between October 2003 and June 2005 the brokerage failed to accurately document certain customer identification programme (CIP) practices and verify the identities of 65,442 customers as required by the USA Patriot Act as well as its own rules.