RBC Capital Markets was penalized by the Financial Industry Regulatory Authority over violations involving its anti-money laundering policies, according to AdvisorHub.
FINRA’s letter of acceptance, waiver and consent stated that from February 2016 through September 2023, RBC failed to develop and implement an anti-money laundering (AML) compliance program reasonably designed to detect and cause the reporting of suspicious transactions, in violation of FINRA Rules 3310(a), 3310(f)(ii) and 2010. The firm was censured and fined $275,000.
The issues arose during one of FINRA’s cycle exams.
Under FINRA Rule 3310, member firms are required to develop and implement a written AML program reasonably designed to achieve and monitor the firm’s compliance with the requirements of the Bank Secrecy Act and implementing regulations promulgated by the U.S. Department of the Treasury. FINRA Rule 3310(a) requires each firm to “[e]stablish and implement policies and procedures that can be reasonably expected to detect and cause the reporting of transactions required under 31 U.S.C. 5318(g) and the implementing regulations thereunder.”
During the period in question, RBC’s wealth management division implemented surveillance systems that could trigger alerts for potentially suspicious transactions, including unusual money movements by a particular customer.
FINRA noted that an automated system would generate an alert when the thresholds of a certain rule were triggered, but that the three monitoring rules introduced by RBC were configured in such a manner that they would not detect many of the movements they were meant to catch.
One rule was utilized to identify securities accounts used for fund movements without engaging in securities trading, but the firm set the triggers based on an account’s margin balance (which was typically below the minimum threshold) rather than the account balance.
The second rule was intended to identify customer accounts that conducted almost identical credit and debit transactions, but the rule failed to trigger useful alerts because the thresholds for total credits were set too high.
“The third monitoring rule was intended to identify customer accounts that had a high volume of “journal” transactions, i.e., transfers of cash between internal accounts that might indicate unauthorized third-party money movement activity, but the rule generated a high volume of false positives because it captured routine transfers between accounts belonging to the same person or
related parties,” FINRA stated. “Because the firm improperly configured the parameters and thresholds of these monitoring rules, they either failed to generate useful alerts or otherwise did not identify red flags of suspicious money movements that the firm should have investigated.”
Regulators said the firm failed to effectively review the monitoring rules to determine whether the rules were identifying suspicious money movements in customer accounts so as to enable the firm to investigate and report the suspicious transactions.
The firm delegated to two different groups responsibilities for assessing the effectiveness of the monitoring rules and for decommissioning ineffective rules, but the firm did not have procedures for the two groups to coordinate or escalate concerns. Consequently, FINRA said, the three rules that failed to generate useful alerts remained in place for years and during this period, the firm failed to identify, investigate, and report suspicious transactions that these rules were designed to detect.
RBC was found to have violated the FINRA rules requiring firms develop and maintain anti-money laundering policies as well as Rule 2010 mandating high standards of conduct.
RBC did not admit or deny the findings, but accepted and consented to the settlement. An RBC spokesperson said the firm is pleased to have resolved the issue. “The firm remains committed to strong compliance practices and continuously works to strengthen our monitoring capabilities in line with regulatory expectations,” the spokesperson wrote in a statement.
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