SEC Charges $79 Million Penalties on Broker Companies for Deficiencies in Recordkeeping

The Security and Exchange Commission (SEC) has imposed $79 million worth of penalties on brokerage firms due to inadequate AML regulations and shortcomings in recordkeeping. 

The SEC issued charges against the 5 broker firms; three are dually registered broker companies, and two are affiliated investor advisors. The SEC levied penalties for not complying with the international AML derivatives and not preserving digital communications with customers and other firms. These brokerages, including Robert W. Baird & Co. Inc., Interactive Brokers Corp, Fifth Third Securities Inc., and Nuveen Securities LLC, have collectively agreed to pay $79m fines to the SEC. 

The securities department investigated 10 broker firms. Employees at these firms communicate and discuss business through personal text messages, which violates the recordkeeping federal securities laws. The 5 broker-dealers accept these allegations and admit their employees are sending and receiving messages from off-channel communications as well as failing to maintain the record of these communications. Director of the SEC’s Division of Enforcement, Gurbir S. Grewal, stated “one of the orders included in today’s announced actions is not like the others. There are real benefits to self-reporting, remediating and cooperating.” 

The fine is not sufficient to mitigate risk for the brokerage firms. In addition to the monetary fines, the companies have been censured, promised to stop violating in the future, and committed to enhancing their compliance policies and processes. SEC also obliged them to appoint independent advisors and robust technology to overview regulations and procedures related to recordkeeping and develop a system to keep electronic communications on personal devices.

SEC previously warned various broker firms to comply with the AML regulations and urged them to uphold adequate due diligence processes, especially customer onboarding. The management also stresses the concerns about the inadequate brokerage process to comply with the international guidelines to combat money laundering and terrorist financing. SEC emphasises the necessity of the broker firms to uphold a comprehensive AML system according to the Bank Secrecy Act (BSA) and Financial Action Task Force (FATF) regulations. Moreover, companies must update the laws timely and comply with robust AML programs to secure the integrity of the brokerage industry. 

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