A boutique Wall Street broker dealer has been censured and fined $450,000 after FINRA found inadequate checks for suspicious trading activity. In its investigation FINRA found that MM Global Securities, Inc. (MM Global), an introducing broker-dealer that offers customers self-directed online trading, failed to:

• establish and implement a reasonably designed anti-money-laundering (AML) compliance program;
• establish and maintain a supervisory system that would ensure compliance with federal securities laws and FINRA rules;
• implement its Customer Identification Program (CIP).

According to FINRA the firm “lacked reasonable written AML procedures for the surveillance of trading for suspicious activity.” Although the firm signalled its intent to detect market manipulations the procedures for doing so were inadequate. The procedures did not:

• identify any types of manipulative trading;
• describe how the firm would detect such trading;
• create parameters to be used to determine whether transactions were suspicious;
• identify any specific exceptions reports to detect unusual transactions;
• describe how supervisors should use reports; and
• describe what activity should trigger further action.

In addition FINRA found that the firm “did not use any exception reports or automated tools to detect suspicious activity”, but instead relied almost entirely on manual procedures. In FINRA’s use of manual procedures “was not reasonable given the volume and complexity of trading by the firm’s customers”.

Litany of failure

As a result of the failure to implement a “reasonably designed AML program” the firm failed to “detect, investigate, and respond” to suspicious activity “even after that activity was brought to its attention.”

According to FINRA the firm also breached recordkeeping rules. The firm’s representatives used WeChat and their personal and non-firm email addresses to communicate with each other and another firm. Although the firm knew of these communications it took “no steps to preserve them”.

MM Global agreed to a censure and a $450k fine without admitting or denying the rule violations. In addition the firm has been prohibited from providing market access to customers for a period of two years and from engaging in any business that provides market access to customers until it has revised and enhanced its AML and supervisory procedures.