A prominent fintech broker-dealer has been hit with a significant $29.75 million settlement by the Financial Industry Regulatory Authority (FINRA). Two divisions of the company agreed to the settlement without admitting or denying the allegations, highlighting critical compliance gaps that firms across the financial services industry should take note of. The substantial penalty consists of $3.75 million in restitution to affected customers and $26 million in fines for various rule violations.

Key Compliance Failures

At the core of FINRA’s findings were significant shortcomings in the firm’s anti-money laundering (AML) programs. Regulators determined that the company failed to detect suspicious trading activities, adequately investigate red flags indicating potential misconduct, and report suspicious activities in a timely manner. These AML deficiencies extended to manipulative trading patterns, unauthorized fund movements of funds, and third-party account takeovers — all critical risk areas that compliance departments must vigilantly monitor.

FINRA also cited the broker-dealer for implementing an inadequate customer identification program. This resulted in thousands of accounts being opened without reasonable verification of customer identities, creating significant regulatory exposure and potential security vulnerabilities. The regulator found that the firm provided misleading or incomplete disclosures regarding its practice of “collaring” market orders by converting them into limited orders, with affected customers now eligible for restitution.

Additionally, FINRA highlighted the firm’s failure to adequately supervise and retain social media communications that promoted its services through paid influencers, some of which contained misleading statements that could have improperly influenced investors.

Implications for Compliance Officers

This case serves as a stark reminder of the increasingly complex compliance challenges facing financial firms. Compliance officers can prevent similar issues through several targeted measures:

  • Enhanced AML surveillance systems should be implemented to promptly detect and investigate suspicious patterns.
  • Customer identification procedures must be strengthened with thorough verification processes.
  • Firms need transparent disclosure practices regarding order execution and other material aspects of business.
  • Comprehensive social media policies should include clear guidelines for marketing communications with proper archiving solutions.
  • Regular internal compliance assessments should focus particularly on areas highlighted in recent regulatory actions.

By implementing these measures, compliance teams can better protect their firms from regulatory actions while safeguarding their customers’ interests.