Regulators cracking down on broker-dealers for anti-money laundering violations
Large, medium and small firms are all on the radar of the SEC and Finra
Regulators are cracking down on anti-money laundering violations among broker-dealers, including smaller firms that may not have the compliance resources to stay on top of the rules.
The Securities and Exchange Commission said Wednesday that New York-based Albert Fried & Co. agreed to pay $300,000 to settle charges that it failed to sufficiently monitor customers’ trading for suspicious activity.
Another small broker-dealer, E.S. Financial Services, a Miami-based firm now called Brickell Global Markets, agreed earlier this year to a $1 million settlement for charges it violated anti-money laundering rules, according to a statement by the SEC.
Small and medium-sized broker-dealers should brace themselves for increased regulatory scrutiny of their compliance practices, as it’s not just the big, high-profile brokearges that regulators are targeting, according to Nick Fera, chief executive officer of Firm58, a provider of trading surveillance services.
“They’re getting more aggressive about things,” he said. “It’s harder to operate a business in this environment.”
It’s not just the SEC. The Financial Industry Regulatory Authority Inc. last month slapped two units of Raymond James Financial Inc. with a record $17 million in fines for widespread compliance failures in the brokerage firm’s anti-money laundering programs.
It can be difficult for small and medium-sized broker-dealers to keep up with compliance, partly because they don’t always have the internal resources to stay on top of the rules that evolve along with the new schemes employed by criminals to move money around undetected, according to Mr. Fera.
Many would prefer to focus on expanding their business, but the heightened regulatory scrutiny demands their attention, he said.
The SEC’s investigation of Albert Fried & Co. found it failed to file “suspicious activity reports” with bank regulators for more than five years despite red flags tied to its customers’ high-volume liquidations of low-priced securities.
“Brokerage firms must take their anti-money laundering responsibilities seriously so they can serve as a line of defense against misconduct and market risks,” Andrew Ceresney, director of the SEC’s Division of Enforcement, said in the agency’s statement on Albert Fried & Co.’s settlement.
Anthony Katsingris, chief operating officer at Albert Fried & Co., didn’t immediately return a phone call seeking comment.
The SEC examination of E.S. Financial found it allowed foreign customers to buy and sell securities through a Central American bank’s brokerage account without verifying the identities of the non-U.S. citizens who beneficially owned them, according to the SEC.
“The new management of Brickell Global Markets chose to voluntarily disclose the conduct at issue in the investigation, and fully cooperated with the SEC,” G. Frederick Reinhardt, chairman and CEO of Brickell Bank, said in a statement when the company settled with the SEC. The conduct dated back to 2003, when the firm was controlled by the Espirito Santo family, according to the statement.
“Employees involved in what was then a family-run business are no longer with the company,” Mr. Reinhardt said. “We have made a clean sweep and a fresh start, and have agreed to an independent monitor for a period of two years.”