Finra fines Scottrade $600,000 for AML failings
26 October 2009 | 7945 views | 0
US online brokerage Scottrade has been hit with a $600,000 fine for failing to establish and implement an adequate anti-money laundering programme for its Internet-based business model.
The Financial Industry Regulatory Authority (Finra) says that between April 2003 and April 2008, Scottrade operated an inadequate AML programme.
Indeed, from April 2003 through January 2005, Scottrade did not have any systematic or automated programme to detect potentially suspicious money movement or securities transactions, relying instead on a manual system.
Until June 2004, Scottrade's AML compliance officer was the sole employee specifically charged with investigating referrals to determine whether activity was "suspicious" and therefore reportable.
In February 2005, the firm finally implemented a proprietary, automated system but Finra says it was inadequate because it was primarily designed to monitor for and detect suspicious money movement.
Under Scottrade's automated filter-based system, when suspicious activity triggered one of the filters, it generated an alert to the AML analysts responsible for investigating the alerts. The analysts only reviewed for potentially suspicious trading activity if there was money movement into or out of an account that independently triggered one of the filters.
The regulator has now instructed online firms such as Scottrade to consider conducting computerised surveillance of account activity to detect suspicious transactions.
Susan Merrill, chief of enforcement, Finra, says: "Each firm's AML program must be tailored to its business model, including the technological environment in which the firm operates. In this case, despite the large volume of online trading at Scottrade, the firm failed to establish any systematic or automated surveillance until 2005. Then, the automated system the firm implemented remained inadequate because it focused only on suspicious trading that was accompanied by suspicious money movement."
Scottrade neither admitted nor denied the charges but consented to the findings.
In January Finra hit two E*Trade units with a $1 million fine for similar AML policy and procedure failings.