April 15, 2021

FINRA fines online broker for AML failures

On April 14, 2021, the Financial Industry Regulatory Authority published a letter of acceptance, waiver and consent, settling an investigation into anti-money laundering failures by Score Priority Corp., an online introducing broker-dealer known until January 2020 as Just2Trade, Inc.  The company is headquartered in New York, and has approximately fifteen registered representatives and two branch offices.

According to FINRA, from September 2016 through September 2020, Score Priority failed to implement an AML program reasonably designed to achieve compliance with the Bank Secrecy Act.  Alleged violations include the failure to establish a risk-based customer identification program (CIP), and failure to establish an adequate due diligence program.

As noted by FINRA, pursuant to FINRA Rule 3310, due diligence programs must be designed to detect and report known or suspected money laundering activity involving correspondent accounts for foreign financial institution.   Implementing regulations and guidance issued by the Department of the Treasury require securities brokers and dealers to file suspicious activities reports with the Financial Crimes Enforcement Network, and offer examples of “red flag” transactions that could trigger the reporting requirement.  According to FINRA, Score Priority lacked reasonable written AML procedures – for example, the firm’s procedures required activity in foreign accounts to be monitored “periodically,” but did not mandate either a frequency or manner in which the monitoring must be accomplished.  Moreover, during the relevant period, Score Priority relied almost exclusively on a manual review of daily trading data, without applying automated tools to monitor transactions, despite a volume of over 1,000 transactions daily.  The manual review did not permit analysis of trends in the movement of money or securities investments over multiple days.

FINRA also found that Score Priority failed to detect and respond to potentially suspicious activities, including suspicious trading by purportedly unrelated customers in China who carried out $1 billion in trades in low-priced, low-volume securities in 2017 and 2018, and suspicious options purchases by a Europe-based customer who realized a 600% return on his investment over a four-month period in 2020.

Additional violations described by FINRA include Score Priority’s failure to tailor its CIP program to its customer base, or to implement policies and procedures concerning foreign financial institutions, particularly those in suspect jurisdictions.  Specifically, despite its policy prohibiting the opening of correspondent accounts for foreign financial institutions, Score Priority opened a correspondent account for a Cypriot institution without adequate review, resulting in a failure to identify potential price manipulation and suspicious trading.

In light of these findings, FINRA issued, and Score Priority consented to, a censure, a $250,000 fine, and the retention of an independent consultant to conduct a comprehensive review of the company’s policies, systems, procedures and training related to BSA and FINRA rules compliance, and to report its findings to FINRA, and to devise and oversee implementation of a compliance program reasonably designed to satisfy the requirements of the BSA.

FINRA consent letter