According to Reuters, Bank of America Merrill Lynch (BAC) must pay FINRA and the SEC $13M in penalties each — $26M in total — because its anti-money-laundering procedures and policies were purportedly inaccurate. According to the regulators, from ’11 to ’15, these policies and procedures were “not reasonably designed” enough to account for the additional risks involved in certain services offered by some of its retail brokerage accounts.
The SEC’s cease-and-desist order states that Merrill Lynch did not do an adequate enough job of monitoring, identifying, and reporting certain suspect activity involving transaction patterns in customer accounts. Among the allegations is that when the firm provided traditional banking services, the software that was supposed to identify possibly suspect transactions did not screen for such activities.
The $26M fine comes just two months after the Financial Conduct Authority in the UK fined Merrill Lynch $45.5M for not reporting 68.5 million exchange-traded derivative transactions between ’14 and ’16. Because the firm’s wealth management division cooperated with the FCA’s probe, the original fine of $64.9M was reduced by 30%.
In a different securities case, Finra fined J.P. Morgan Securities (JPM) $2.8M for violating the SEC’s Customer Protection Rule regarding supervisory failures. Under the rule, brokerage firms must get and/or stay in “physical possession or control over certain securities,” which must be kept in a “control location.” No “encumbrance” must be in place that could prevent customers from being able to possess said securities. Segregated securities cannot be used for the firm’s own use.
However, according to FINRA, from 3/2008 to 6/2016, J.P. Morgan Clearing Corp. failed to have “reasonable processes in place” to make sure that systems for control or possession were running properly. Because of errors in design and systemic coding, “unreliable supervision,” and deficiencies that were not remedied, shares that were supposed to be segregated were not and could be used by the firm. As a result, said FINRA, deficits in hundreds of millions of dollars in securities were created.
One example cited by the SRO is the firm’s failure to transfer Italian securities to a “good control location” over two years. Because of this, during one sample day, there was a deficit of $146M in Italian securities.
J.P. Morgan is not denying or admitting to the charges. It has, however, put a plan in place to deal with the alleged violations.
If you are an investor who has sustained losses that you believe may be due to securities fraud, contact The SSEK Partners Group today and ask to speak with one of our experienced securities lawyers. We work with high net worth individual investors and institutional investors.
The FINRA Action in the J.P. Morgan Securities Case (PDF)
Bank of America Merrill Lynch to pay $26 million for allegedly failing to report suspicious transactions, Reuters, December 21, 2017
Bank of America’s Merrill Lynch hit with $45.5 million fine by U.K. regulator, MarketWatch, October 23, 2017
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