The
Financial Industry Regulatory Authority (FINRA) has expanded its battle against
financial firms that fail to respond to red flags indicating suspicious
activity in customer accounts. The
latest target is a clearing firm, COR Clearing, LLC (formerly known as Legent
Clearing, LLC), which was recently hit with a $1 million fine to a clearing
firm for failing to detect suspicious account activity.
FINRA’s
action underscores the heightened responsibility that regulators impose on
so-called gatekeepers in the securities markets to implement and maintain
adequate supervisory controls to prevent fraud.
As a clearing firm for correspondent firms that introduce accounts, COR
performs the back-office functions, such as order processing and recordkeeping
tasks, that non-clearing broker-dealers cannot provide to their customers. In that capacity, clearing firms typically do
not have direct contact with the introducing broker-dealers customers other
than sending out monthly account statements.
They offer no investment advisory services to the investor.
FINRA
identified numerous violations over a series of examinations of COR’s
operations between 2009 and 2013 that ran afoul of the agency’s regulatory
priorities of microcap fraud and anti-money laundering (AML) compliance
deficiencies. FINRA’s investigation
concluded that COR’s AML program “did not reasonably address the risks” associated
with the significant number of accounts introduced by its correspondent
broker-dealers that were actively trading low-priced securities and engaged in
significant third-party wire activity, which “present a higher risk of money
laundering and other fraudulent activity.”
COR’s systems were further deficient because it was aware that many of
its correspondent firms had heightened AML risks due to their histories of
disciplinary actions for AML rule violations.
COR settled
the FINRA charges, without admitting or denying the allegations, and consented
to the entry of the regulator’s findings.
In addition to the fine, COR is required to retain an independent
consultant to conduct a comprehensive review of its policies, procedures,
operations and training in order to come into full compliance with its
supervisory obligations.
