According to the new rule, Nasdaq will require that companies raise at least $15 million in order to list on its exchange. Nasdaq appears to have set an exceptionally high standard for microcap companies and other firms seeking to provide liquidity to their investors.

Nasdaq is changing the way it calculates public float, which refers to shares available for trading that are not held by insiders or restricted due to lockups. Previously, Nasdaq included shares registered for resale by existing investors at the time of an IPO in these calculations. Under the new rule, only newly issued IPO shares will be counted.

In its letter to the SEC, Nasdaq stated that “it has observed that the companies that meet the applicable Market Value of Unrestricted Publicly Held Shares requirement through an IPO by including Resale Shares have experienced higher volatility on the date of listing than those of similarly situated companies that meet the requirement with only the proceeds from the offering.”

As a result, Nasdaq is now only including newly issued IPO shares when making calculations in connection to its listing requirements as opposed to additionally including resale shares. The Exchange hopes that by doing so, it will not list companies exposed to high volatility. “As such, it is appropriate to modify the rules to exclude the resale shares from the calculation of market value,” Nasdaq told the SEC.

According to many in the capital markets industry, this rule could revive the dying Special Purpose Acquisition Company (SPAC) market. With the newly set bar, many companies will look to engage in reverse mergers which provides an alternate pathway towards an IPO.

Furthermore, companies seeking to uplist from over-the-counter markets, such as those operated by OTC Markets Group Inc., must now raise at least $5 million through a firmly underwritten public offering to list on the Nasdaq Capital Market, or $8 million to list on the Nasdaq Global Market. Previously, Nasdaq’s public offering requirement for both tiers was $4 million.

Ultimately, Nasdaq is implementing this rule to reduce the listing of highly volatile companies on its exchange. By excluding certain insider shares from its calculations, Nasdaq has established a higher threshold for companies seeking to qualify for listing.  

The post Nasdaq Imposes Stricter IPO Listing Standards on Small Companies appeared first on Compliance Chief 360.

In its dropped lawsuit, the CFPB claimed that hundreds of thousands of consumers filed fraud complaints to Wells Fargo, JP Morgan, and Bank of America and were denied help, with many being told to contact the fraudsters directly to recover their money. The major banks were alleged of failing to properly investigate the customer complaints and failing to reimburse such their customers for valid fraud claims.

The lawsuit originated from a investigation in 2021. The investigation found that three of the nation’s largest banks allegedly “rushed to launch a payment system without implementing basic protections for their customers.” As a result, “Defendants failed to take steps to ensure consumers were protected from fraud, while nevertheless marketing Zelle as safe and secure.”

This lawsuit was originally brought under the leadership of former CFPB Director Rohit Chopra. Chopra, who was appointed during the Biden administration, was fired in February, weeks after the commencement of the Trump administration. “This is about financial institutions fulfilling their basic obligations to protect customers’ money and help fraud victims recover their losses,” according to former CFPB Director Rohit Chopra said at the time. “These banks broke the law by running a payment system that made fraud easy, and then refusing to help the victims.”

Although the CFPB sought to hold those who failed to protect consumers from fraud accountable, its dismissal of the case has gathered much support. “Banks have and consistently do follow the law in offering services through Zelle,” Consumer Banks Association President and CEO Lindsey Johnson said. “In a time when fraud and scam activity is surging across industries and government alike, we look forward to moving past finger-pointing and political grandstanding and, instead, working constructively with policymakers to counter the root causes of these threats.”

This dropped lawsuit is the latest in a series of voluntary dismissals by the CFPB, which recently withdrew several cases against companies like Capital One and Rocket Homes. All of these lawsuits were initially filed during Chopra’s tenure as CFPB Director.

The CFPB has been rapidly dismantled in a matter of weeks, with employees ordered to halt nearly all work, approximately 150 staff members dismissed, and the bureau’s D.C. headquarters closed. This comes at a time in which President Trump has explicitly expressed his goal in shrinking the agency.  

The post CFPB Drops Zelle Lawsuit as Dismissals Continue to Pile Up appeared first on Compliance Chief 360.

The leaders of the proposed legislation argue that the original rule, which aimed to protect consumers from high fees, had negative impacts on consumers and diminished their financial protections. “The CFPB’s actions on overdraft is another form of government price controls that hurt consumers who deserve financial protections and greater choice,” said House Financial Service Committee Chairman French Hill. “Our [rule] will help overturn this harmful rule and is a next step toward ensuring the CFPB halts all ongoing rules until it answers to Congress, just like any other non-independent federal agency.”

The effort to repeal the overdraft fees cap has received much support from various Bankers Associations. “Millions of hardworking Americans, including the one in five without access to credit, rely on overdraft services as a valuable financial lifeline, yet the Biden-Chopra CFPB’s overdraft rule threatens to cut off their access to this essential bank product,” Consumer Bankers Association President Lindsey Johnson said in a statement.

The overdraft rule was finalized in December under former CFPB Director Rohit Chopra. According to Chopra, this rule was purposed to ensure that junk fees were not the source of a billion-dollar revenue stream. The CFPB perceives the rule as an effort to balance the power between those charging the junks fees and those being charged.

Although the bill is aimed at protecting consumers, the House and Senate’s efforts to nullify the rule has received some criticism. Many consumer advocates hope that the bill does not get passed. They view the overdraft cap as means to protect lower-income families from “junk fees.”

“For too long, banks have gouged economically vulnerable consumers with costly overdraft fees that make it harder for them to stay on track financially,” said Chuck Bell, advocacy program director at Consumer Reports. “The CFPB’s new rule imposes reasonable limits on overdraft fees so they are in line with a bank’s actual costs instead of a way for banks to pad their profits at the expense of those least able to afford it.”

Various banking industry groups have challenged the rule in court on the basis that the CFPB did not have proper authority to impose such a rule. The case remains open but is expected to be thrown out now that the House and Senate intend to invalidate it.

Although the rule seeks to invalidate the overdraft fees rule, it has not effectively done so yet. This bill was enabled by the Congressional Review act, which permits Congress to either nullify or approve new agency rules. The Act authorizes Congress to pass a joint resolution of disapproval if it seeks to invalidate the rule. If the joint resolution of disapproval approved by both houses of Congress and signed by the President, or if Congress successfully overrides a presidential veto, the rule at issue cannot go into effect or continue in effect.  

The post Congress Moves to Overturn CFPB’s Cap on Overdraft Fees appeared first on Compliance Chief 360.

The task force’s focus will be to assist the SEC in defining clear rules and boundaries for regulatory oversight and develop practical and achievable ways for companies, securities, or financial products to comply with SEC registration requirements. It will also create guidelines for companies to provide necessary and meaningful disclosures to investors without being overly burdensome or impractical.

The SEC perceives such the task force as way to both ensure that the agency itself performs better and to provide more clarity when it comes to crypto regulation. According to the SEC the task force will collaborate with agency staff and the public to “set the SEC on a sensible regulatory path that respects the bounds of the law.”

While under the leadership of former Chair Gary Gensler, the SEC faced much criticism on its approach to crypto regulation. Until the launch of this task force, the SEC primarily relied on enforcement actions that would have a retroactive regulatory effect on crypto rather than proposing clearcut rules.

“To date, the SEC has relied primarily on enforcement actions to regulate crypto retroactively and reactively, often adopting novel and untested legal interpretations along the way,” according to a SEC press release. “Clarity regarding who must register, and practical solutions for those seeking to register, have been elusive. The result has been confusion about what is legal, which creates an environment hostile to innovation and conducive to fraud. The SEC can do better.”

The Task Force’s Specific Focuses

According to the SEC, the task force’s undertaking will “take time, patience, and much hard work. It will succeed only if the task force has input from a wide range of investors, industry participants, academics, and other interested parties.” Many crypto firms have already begun submitting proposals such as allowing traditional broker-dealers to operate in the cryptocurrency market. in its mission to create a regulatory framework

Although it has and continues to receive ideas from crypto firms, the task force will prioritize the following objectives  its mission to create a regulatory framework:

• Security Status: The task force is studying different types of crypto assets to determine how securities laws apply to them, as this affects many other regulatory questions.
• Defining Jurisdiction: The task force is identifying areas that may not fall under SEC oversight.
• Coin and Token Offerings: The task force is considering temporary rules to allow certain token offerings to operate without uncertainty, as long as the issuer provides regular, accurate disclosures and agrees to SEC oversight in fraud cases. This would offer clarity until permanent rules or legislation are established.
• Registered Offerings: The task force will explore ways to improve existing registration options, to make it easier for token issuers to comply with SEC rules.
• Special Purpose Broker-Dealer: The task force is looking at revising the special-purpose broker-dealer framework, including allowing firms to hold both securities and non-securities crypto assets, and identifying other registration challenges.
• Custody Solutions for Investment Advisors: The task force will work with investment advisers to provide an appropriate regulatory framework within which advisers can safely, legally, and practically custody client assets themselves or with a third-party.
• Crypto Lending and Staking: The task force aims to clarify whether crypto lending and staking programs are subject to securities laws and, if so, how they can be structured to comply with regulations.
• Crypto Exchange-Traded Products (“ETPs”): The task force will help the SEC clarify its decision-making process for approving or rejecting new crypto ETPs. It will also consider updates to existing ETPs, like allowing staking or different ways of handling fund shares, but custody and other issues must be addressed first.
• Clearing Agencies and Transfer Agents: The task force will explore how blockchain and crypto assets fit within clearing and transfer rules, including their role in modernizing traditional financial markets.
• Cross-Border Sandbox: Since many crypto projects operate globally, the task force is considering ways to support limited, temporary international regulatory experiments, with the possibility of long-term solutions.

Although the task force initially said that it is open to ideas from industry participants and academics, it also welcomes public input. Anyone who would like to submit a comment to the task force can do so at Crypto@sec.gov.  

The post SEC Launches Cyrpto Task Force appeared first on Compliance Chief 360.

The CFPB’s lawsuit describes how hundreds of thousands of consumers filed fraud complaints and were largely denied help, with some being told to contact the fraudsters directly to recover their money. Bank of America, JPMorgan Chase, and Wells Fargo also allegedly failed to properly investigate complaints or reimburse consumers for fraud and errors as is required by law.

Jane Khodos, a spokesperson for Zelle, said that the CFPB’s arguments are “legally and factually flawed, and the timing of this lawsuit appears to be driven by political factors unrelated to Zelle.”

“Zelle leads the fight against scams and fraud and has industry-leading reimbursement policies that go above and beyond the law,” Khodos said. “The CFPB’s misguided attacks will embolden criminals, cost consumers more in fees, stifle small businesses and make it harder for thousands of community banks and credit unions to compete. Zelle is relied upon by 143 million enrolled American consumers and small businesses, and we are fully prepared to defend this meritless lawsuit to ensure their service does not suffer.”

The Alleged Failures and Neglect

According to statement made by CFPB Director Rohit Chopra, this lawsuit results from an investigation that launched in 2021. The investigation found that three of the nation’s largest banks allegedly “rushed to launch a payment system without implementing basic protections for their customers.”

The CFPB alleges widespread consumer losses since Zelle’s 2017 launch due to the platform’s and the banks’ failure to implement appropriate fraud prevention and detection safeguards. The CFPB alleges that Bank of America, JPMorgan Chase, Wells Fargo, and Early Warning Services violated federal law through critical failures including:

• Leaving the door open to scammers: Zelle’s limited identity verification methods have allowed scammers to quickly create accounts and target Zelle users. For example, criminals often exploited Zelle’s design and features to link a victim’s token to the fraudster’s deposit account, which caused payments intended for the consumer’s account to instead flow to the fraudster account.
• Allowing repeat offenders to hop between banks: Early Warning Services and the banks were too slow to restrict and track criminals as they exploited multiple accounts across the network. The banks did not share information about known fraudulent transactions with other banks on the network. As a result, the fraudsters could carry out repeated fraud schemes across multiple institutions before being detected, if they were detected at all.
• Ignoring red flags that could prevent fraud: Despite receiving hundreds of thousands of fraud complaints, the banks failed to use this information to prevent further fraud. They also allegedly violated the Zelle Network’s own rules by not reporting fraud incidents consistently or on time.
• Abandoning consumers after fraud occurred: Despite obligations under the Electronic Fund Transfer Act and Regulation E, the banks failed to properly investigate Zelle customer complaints and take appropriate action for certain types of fraud and errors.

The lawsuit aims reimburse those who suffered financial losses due to the alleged neglect of fraud. It also seeks to impose penalties on the banks and implement measures to prevent similar violations in the future.  

Jacob Horowitz is a contributing editor at Compliance Chief 360°

The post CFPB Sues Major Banks and Zelle Operator for Alleged Fraud appeared first on Compliance Chief 360.

ells Fargo’s recent disclosure of regulatory investigations related to its anti-money laundering (AML) and sanctions programs and agreement to “work with U.S. bank regulators to shore up its financial crimes risk management” serves as a timely reminder of the ongoing importance of robust compliance measures in the financial sector.

These events underscore the need for vigilance at all levels of the industry, from major institutions to smaller financial companies, and further highlight the critical role of due diligence in selecting and monitoring payment solution providers for compliance officers, risk practitioners, and internal audit executives.

To that end, here are four essential questions to ask when evaluating potential partners, informed by the latest industry developments:

1. How comprehensive is the BSA/AML compliance program?

A robust Bank Secrecy Act and Anti-Money Laundering (BSA/AML) compliance program is vital to any financial institution’s risk management strategy. When evaluating a provider’s program, look for well-defined internal policies and controls. These should include a documented BSA/AML policy that outlines the organization’s approach to identifying, assessing, and managing money laundering and terrorist financing risks.

The policy should encompass clear customer identification procedures, risk-based customer due diligence processes, and transaction monitoring systems. Additionally, it should detail suspicious activity reporting procedures and record-keeping practices that meet or exceed regulatory requirements. Equally important is a defined process for staying current with regulatory changes and implementing updates promptly.

A dedicated compliance officer should oversee these efforts. This individual should possess relevant experience in BSA/AML compliance, appropriate certifications, and have direct access to senior management and the board of directors. They should be empowered to implement necessary changes across the organization.

Another crucial element is ongoing, comprehensive training. Look for providers that offer role-specific training tailored to different departments, annual refresher courses for all staff, and ad-hoc training to address new regulations or emerging risks. The training program should include testing to ensure comprehension and retention of key concepts, with all activities documented for audit purposes.

Finally, the provider should conduct rigorous auditing and monitoring. This includes regular internal audits of all BSA/AML processes, periodic independent third-party audits, and continuous monitoring of transactions and customer activity. There should be a straightforward process for addressing and remediating audit findings, with regular reporting to senior management and the board on audit results and program effectiveness.

2. Who comprises the compliance team?

The expertise of the compliance team is crucial in navigating complex regulatory landscapes. Look for a diverse team with a mix of legal, financial, and technological expertise.

A well-rounded team might include a chief legal & compliance officer, corporate counsel, senior compliance analysts, a finance settlement manager, information security leaders, and an operations director. This diversity helps ensure a comprehensive approach to compliance and security, reducing the risk of oversight that could lead to regulatory issues.

3. How does the organization embed compliance responsibilities across all departments?

Compliance should not be confined to a single department but should be integrated throughout the organization. A company-wide commitment to compliance should be evident through clear statements from leadership emphasizing its importance, inclusion of compliance objectives in departmental and individual performance metrics, and regular compliance updates in company-wide communications.

Training should extend beyond the compliance department. Look for providers that offer role-specific training illustrating how compliance impacts different job functions. Scenario-based learning can help employees identify and respond to potential compliance issues. The use of multiple training formats can cater to different learning styles, ensuring comprehensive understanding across the organization.

Clear communication channels for reporting potential issues are essential. This includes an anonymous whistleblowing hotline or reporting system, a defined escalation process for compliance concerns, and protection for employees who report potential violations. Regular reminders about these reporting channels reinforce the importance of speaking up.

A culture of compliance is characterized by the incorporation of compliance considerations into all business decisions and processes. This might include recognition for employees who demonstrate strong compliance behavior, zero tolerance for willful non-compliance regardless of an employee’s position, and regular compliance “town halls” or Q&A sessions to foster open dialogue about compliance matters.

4. What is the approach to regular internal audits and regulatory examinations?

In light of increased regulatory scrutiny, regular, independent audits are crucial. Inquire about the frequency and scope of their audits, including how often internal audits are conducted, what areas they cover, and how findings are categorized and addressed.

The provider’s relationship with regulatory bodies and sponsor banks is also important. Ask about their interaction with regulators outside of formal examinations, participation in regulatory outreach events or industry working groups, and their track record with past regulatory examinations.

A strong provider will have a formal process for reviewing and acting on audit and examination findings. This should include tracking and validating corrective actions, measuring the effectiveness of implemented changes, and sharing learnings across the organization.

Staying updated on regulatory changes and industry best practices is crucial. Look for providers that subscribe to regulatory update services, have relationships with outside counsel or consultants for complex regulatory matters, and participate in industry associations or forums.

Finally, inquire about their approach to continuous improvement. This might include using data analytics to enhance compliance programs, conducting regular risk assessments to identify potential gaps or emerging risks, and benchmarking their practices against industry peers.

Proactive Compliance in a Complex Regulatory Environment

The recent Wells Fargo disclosure reminds us that compliance is an ongoing process requiring constant attention and proactive measures. For compliance officers, risk practitioners, and internal audit executives, this underscores the importance of thorough due diligence when selecting and monitoring payment solution providers.

By asking these four key questions and critically evaluating the responses, you can significantly mitigate risks and ensure a more secure financial ecosystem for your organization. Remember, in today’s regulatory environment, compliance isn’t just about meeting minimum requirements—it’s about fostering a culture of integrity and security that permeates every aspect of your operations.

As you evaluate potential payment solution providers, look for partners who share this philosophy and demonstrate a commitment to excellence in compliance and security. In doing so, you’ll not only meet regulatory requirements but also build a foundation of trust with your customers, stakeholders, and regulators—a crucial asset in navigating today’s financial landscape.  

Anna Fron is Chief Legal and Compliance Officer at Dash Solutions, a platform that provides digital payments and engagement program management to thousands of customers.

The post Compliance Lessons from Wells Fargo: Four Questions to Ask Your Payment Solution Provider appeared first on Compliance Chief 360.

anadian-based TD Bank will pay more than $3 billion in a historic settlement with U.S. authorities who said that the financial institution’s lax practices allowed significant money laundering over multiple years. The bank pleaded guilty to conspiracy to commit money laundering, the largest bank in U.S. history to do so, Attorney General Merrick Garland said.

“TD Bank created an environment that allowed financial crime to flourish,” Garland said. “By making its services convenient for criminals, it became one.”

TD Bank, the 10th largest bank in the United States, agreed to pay over $1.8 billion in penalties to resolve the Justice Department’s investigation into violations of the Bank Secrecy Act (BSA) and money laundering, the Justice Department said in a statement. A TD Bank statement said the full expense would exceed $3 billion for the firm, which must also upgrade its current anti-money laundering operations. It also will face a more stringent approval process for new products, stores, services and markets.

The bank pleaded guilty to conspiring to fail to maintain an anti-money laundering (AML) program that complies with the BSA, fail to file accurate Currency Transaction Reports (CTRs), and launder money.

TD Bank’s guilty pleas are part of a coordinated resolution with the Board of Governors of the Federal Reserve Board (FRB), as well as the Treasury Department’s Office of the Comptroller of the Currency (OCC) and Financial Crimes Enforcement Network (FinCEN).

“By making its services convenient for criminals, TD Bank became one,” . “Today, TD Bank also became the largest bank in U.S. history to plead guilty to Bank Secrecy Act program failures, and the first US bank in history to plead guilty to conspiracy to commit money laundering,” said Garland. “TD Bank chose profits over compliance with the law — a decision that is now costing the bank billions of dollars in penalties. Let me be clear: our investigation continues, and no individual involved in TD Bank’s illegal conduct is off limits.”

“For years, TD Bank starved its compliance program of the resources needed to obey the law. Today’s historic guilty plea, including the largest penalty ever imposed under the Bank Secrecy Act, offers an unmistakable lesson: crime doesn’t pay — and neither does flouting compliance,” said Deputy Attorney General Lisa Monaco. “Every bank compliance official in America should be reviewing today’s charges as a case study of what not to do. And every bank CEO and board member should be doing the same. Because if the business case for compliance wasn’t clear before — it should be now.”

‘Pervasive and Systemic Deficiencies’

According to court documents, between January 2014 and October 2023, TD Bank had long-term, pervasive, and systemic deficiencies in its U.S. AML policies, procedures, and controls but failed to take appropriate remedial action. Instead, senior executives at TD Bank enforced a budget mandate, referred to internally as a “flat cost paradigm,” requiring that TD Bank’s budget not increase year-over-year, despite its profits and risk profile increasing significantly over the same period. Although TD Bank maintained elements of an AML program that appeared adequate on paper, fundamental, widespread flaws in its AML program made TD Bank an “easy target” for perpetrators of financial crime.

Over the last decade, TD Bank’s federal regulators and TD Bank’s own internal audit group repeatedly identified concerns about its transaction monitoring program, a key element of an appropriate AML program necessary to properly detect and report suspicious activities. Nonetheless, from 2014 through 2022, TD Bank’s transaction monitoring program remained effectively static, and did not adapt to address known, glaring deficiencies; emerging money laundering risks; or TD Bank’s new products and services. For years, TD Bank failed to appropriately fund and staff its AML program, opting to postpone and cancel necessary AML projects prioritizing a “flat cost paradigm” and the “customer experience.”

Throughout this time, TD Bank intentionally did not automatically monitor all domestic automated clearinghouse (ACH) transactions, most check activity, and numerous other transaction types, resulting in 92% of total transaction volume going unmonitored from Jan. 1, 2018, to April 12, 2024. This amounted to approximately $18.3 trillion of transaction activity. TD Bank also added no new transaction monitoring scenarios and made no material changes to existing transaction monitoring scenarios from at least 2014 through late 2022; implemented new products and services, like Zelle, without ensuring appropriate transaction monitoring coverage; failed to meaningfully monitor transactions involving high-risk countries; instructed stores to stop filing internal unusual transaction reports on certain suspicious customers; and permitted more than $5 billion in transactional activity to occur in accounts even after the bank decided to close them.

TD Bank’s AML failures made it “convenient” for criminals, in the words of its employees. These failures enabled three money laundering networks to collectively transfer more than $670 million through TD Bank accounts between 2019 and 2023. Between January 2018 and February 2021, one money laundering network processed more than $470 million through the bank through large cash deposits into nominee accounts. The operators of this scheme provided employees gift cards worth more than $57,000 to ensure employees would continue to process their transactions. And even though the operators of this scheme were clearly depositing cash well over $10,000 in suspicious transactions, TD Bank employees did not identify the conductor of the transaction in required reports.

In a second scheme between March 2021 and March 2023, a high-risk jewelry business moved nearly $120 million through shell accounts before TD Bank reported the activity. In a third scheme, money laundering networks deposited funds in the United States and quickly withdrew those funds using ATMs in Colombia. Five TD Bank employees conspired with this network and issued dozens of ATM cards for the money launderers, ultimately conspiring in the laundering of approximately $39 million. The Justice Department has charged over two dozen individuals across these schemes, including two bank insiders. TD Bank’s plea agreement requires continued cooperation in ongoing investigations of individuals.

As part of the plea agreement, TD Bank has agreed to forfeit $452 million and pay a criminal fine of $1.4 billion, for a total financial penalty of $1.8 billion. TD Bank has also agreed to retain an independent compliance monitor for three years and to remediate and enhance its AML compliance program. TD Bank has separately reached agreements with the FRB, OCC, and FinCEN, and the Justice Department will credit $123 million of the forfeiture toward the FRB’s resolution.

Partial Cooperation Credit

The Justice Department reached its resolution with TD Bank based on a number of factors, including the nature, seriousness, and pervasiveness of the offenses, as a result of which TD Bank became the bank of choice for multiple money laundering organizations and criminal actors and processed hundreds of millions of dollars in money laundering transactions. Although TD Bank did not voluntarily disclose its wrongdoing, it received partial credit for its strong cooperation with the Department’s investigation and the ongoing remediation of its AML program. TD Bank did not receive full credit for its cooperation because it failed to timely escalate relevant AML concerns to the Department during the investigation. Accordingly, the total criminal penalty reflects a 20% reduction based on the bank’s partial cooperation and remediation.

IRS Criminal Investigation, the Federal Deposit Insurance Corporation Office of Inspector General, and Drug Enforcement Administration investigated the case. The Morristown Police Department, U.S. Attorney’s Office for the District of Puerto Rico, Homeland Security Investigations, U.S. Customs and Border Protection, and New York City Police Department provided substantial assistance.  

The post TD Bank to Pay $3B in Plea to Settle Money-Laundering Case appeared first on Compliance Chief 360.

According to FINRA’s order, the broker “facilitated at least 30 UBS customers’ investments in private securities transactions totaling over $7.2 million.” From 1997 to 2021, the UBS representative sold to at least 30 of his UBS customers a “fixed annuit” product offered by an entity formed by the rep’s college friend and business acquaintance. FINRA claims that although the UBS customers believed they were investing in a “fixed annuity” product, they were actually investing in riskier private securities.

FINRA is holding UBS responsible for the broker’s fraudulent practices on account for the fact that its supervisory systems were not reasonably designed to achieve compliance with the firm’s obligation to monitor transmittals of customer funds to third parties. Although the firm automatically flagged for heightened review wires that met certain criteria (e.g., the wire was the customer’s first domestic wire in six months), its automated system did not detect and monitor for instances in which multiple, unrelated customers transferred funds from their UBS accounts by check or wire to the same external party.

UBS Failed to Investigate the Private Transactions

FINRA also notes that UBS should have systems better designed to flag private securities transactions. For at least 17 of the wire transfers to the third party, the reason the customers provided for the wire transfer request was “investment.” UBS flagged the wires for additional review and approval but did not investigate why the representative’s customers were wiring money to the same external, non-UBS entity for an “investment.”

UBS also failed to reasonably investigate several instances from September 2010 to July 2021 in which at least two customers wired money to the third party within the same 30-day period. As an example, in March 2021, two unrelated customers wired a total of $47,000 from their UBS accounts to the third-party entity within eight days of one another. Although UBS flagged both wires for additional review and approval, the firm did not investigate why two of the broker’s customers were wiring money to the same external party.

As a result of UBS’s failures to monitor its customers’ wire transfers, the firms violated NASD Rules 3010 and 3012 and FINRA Rules 3110 and 2010. When the scheme was uncovered, it was discovered that the customers lost most of their funds and UBS repaid the customers more than $17 million in restitution.  

Jacob Horowitz is a contributing editor at Compliance Chief 360° 

The post FINRA Fines UBS for Its Failure to Monitor Customer Fund Transfers appeared first on Compliance Chief 360.

According to Goldman’s letter of acceptance to FINRA, it was charged with violating FINRA Rule 3110(a) and its predecessor, NASD Rule 3010(a) which requires banks to “establish and maintain a system” for the purpose of ensuring that each of its employees complies with the applicable securities laws and regulations. A violation of these rules is also a violation of FINRA Rule 2010, which requires members “to observe high standards of commercial honor and just and equitable principles of trade in the conduct of their business”.

According to FINRA, Goldman failed to include warrants, rights, units, and certain equity securities in nine surveillance reports designed to identify potentially manipulative proprietary and customer trading. “The firm failed to detect that nine surveillance reports for potentially manipulative trading excluded various securities types,” FINRA said. “By failing to have a reasonably designed supervisory system, Goldman violated NASD Rule 3010 and FINRA Rules 3110 and 2010.”

Goldman’s System Failures

As a result of the gaps in its surveillance reports, Goldman could not perform reasonable monitoring of trading activity for potential manipulation. The nine affected reports would have identified approximately 5,000 alerts for potentially manipulative trading activity in those securities from February 2009 through mid-April 2023. Goldman added the missing securities to the surveillance reports either in response to FINRA’s investigation or through the firm’s adoption of new surveillance reports. By April 2023, Goldman had finished remediating all surveillance reports.

Goldman’s supervisory system, including its written procedures, also did not require a review of its automated surveillance reports to ensure they included all relevant securities traded as part of the firm’s business. Because of this, the bank did not notice that nine surveillance reports, which could have indicated manipulative trading, overlooked warrants, rights, units, and specific equity securities.

Goldman Sachs encountered additional scrutiny from both FINRA and the U.S. Securities and Exchange Commission (SEC) due to lapses in reporting. In September, the firm settled with FINRA and the SEC, agreeing to pay a total of $12 million. The allegations centered on Goldman’s failure to fulfill its recordkeeping and reporting duties, as it provided inaccurate trading data in response to numerous regulatory requests.

The SEC and FINRA asserted that for approximately ten years, Goldman provided regulators with securities trading records containing inaccuracies or omissions related to millions of transactions involving the firm.  

Jacob Horowitz is a contributing editor at Compliance Chief 360°

The post FINRA Fines Goldman Sachs For Trade-Monitoring Failures appeared first on Compliance Chief 360.

The post J.P. Morgan Fined for Violating Whistleblower Protection Rules appeared first on Compliance Chief 360.