The Financial Industry Regulatory Authority issued an alert to member firms regarding fraudulent transfers of customer assets.
In Regulatory Notice 22-21, FINRA noted a rising trend in such fraud occurring through the Automated Customer Account Transfer Service (ACATS) and listed regulatory obligations that may apply in connection with ACATS fraud. ACATS is an automated system that facilitates the transfer of customer account assets from one firm to another.
The notice warned that bad actors may use the efficiencies provided by ACATS to fraudulently transfer customer assets. This can begin by opening a new brokerage account online or through a mobile application at another firm using stolen personal information of a legitimate customer of another member firm, the authority said.
According to FINRA, those committing the fraud “may then engage receiving and/or carrying members to conduct a transfer of the account of the legitimate customer at the carrying member into the new brokerage account at the receiving member. When that transfer is complete, the bad actor may then proceed with moving the ill-gotten assets out of the newly established brokerage account to another external account or financial institution.“
The authority said its regulatory programs have identified increased instances of ACATS fraud. Among the red flags identified as possible signs of this activity are repeated rejections of transfer requests, a request for asset transfer soon after a new account is opened, and changes in customer communication patterns.
Member firms shared some of the practices they are using to mitigate the risk of ACATS fraud. These include increased measures for verifying customer identities for accounts established online, verifying the authenticity of account transfer requests, enhanced reviews and verifications of transfer requests, escalating indicators of potentially fraudulent account transfers to the anti-money laundering program, and thoroughly investigating potentially fraudulent account transfer requests.
FINRA urged member firms to evaluate their supervisory systems and compliance programs relating to transfers of customer assets using ACATS.
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