United States’ largest brokerage firm, Interactive Brokers, has been charged by the US SEC for failing to detect and report suspicious transactions.
The United States Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), and the Financial Industry Regulatory Authority (FINRA) Commission have settled charges against the broker-dealer. In the settlement, the brokerage firm has agreed to pay penalties to the three regulating bodies.
Interactive Brokers to pay $38 M penalty.
According to the SEC, Interactive Brokers failed to report more than 150 suspicious transactions across a 12-month period. These suspicious activity reports (SARs) could have been used to flag any potential manipulation of microcap securities.
The agency claims that the brokerage firm failed to red flag these transactions and did not properly investigate suspicious activity as required under federal anti-money laundering (AML) laws.
The SEC stated that the FINRA and the CFTC have announced settlements with the brokerage firm in which the firm has agreed to pay penalties of $15 million and $11.5 million respectively. The firm will also pay $11.5 million in penalties to the SEC raising the total penalty sum to $38 million.
Failure to ensure AML implementation
The CFTC report stated that while Interactive Brokers maintained basic written policies, the company failed to ensure that its AML program was “reasonably equipped” to detect and report suspicious activity.
The brokerage firm had no means to combine and analyze the information generated by various reports to detect patterns of malpractice. As such the company kept overlooking red flags and failed to report them to the regulatory agencies.
The CTFC claimed that the agency uses these SARs to identify manipulation, fraud, and other illegal activities at the earliest stages.