Al Barbarino, 31 March 2021
The U.S. Securities and Exchange Commission isn’t satisfied with the way broker-dealers are responding to and reporting suspicious activities, and a wave of enforcement actions could follow if these regulated entities don’t fall in line with the agency’s latest warning on the matter, industry attorneys say.
Redoubling its efforts to keep brokers in check when it comes to their anti-money laundering, or AML, obligations, the agency in a Monday risk alert sought to “remind” the regulated entities of their duties to report suspicious activities tied to penny stocks, unregistered securities and other high-risk transactions that have swelled up amid COVID-19.
The SEC said that “weak policies, procedures and internal controls” continue to result in brokers “not conducting or documenting adequate due diligence in response to known indicators” that require suspicious activity reports, or SARs.
Among the concerns outlined by the agency, some brokers are failing to follow their own policies and procedures regarding SARs. Others aren’t detailing the types of red flags to be on the lookout for within those policies or are improperly passing off reporting responsibilities to their clearing firms.
The alert follows an SEC report on its examination priorities that also highlighted the importance of anti-money laundering programs, as well as a wave of enforcement actions over penny stock pump-and-dump schemes, particularly since the onset of the pandemic, attorneys noted. They added that SEC action is likely forthcoming if brokers don’t heed the warnings.