Firm Failed to File Nearly 1,500 Suspicious Activity Reports
FINRA announced today that it has fined Merrill Lynch, Pierce, Fenner & Smith Inc. $6 million for failing to establish and implement policies, procedures, and internal controls reasonably designed to cause the reporting of suspicious transactions as required by the Bank Secrecy Act. In particular, Merrill Lynch failed to apply the correct threshold to report suspicious activities for more than 10 years and, as a result, failed to file nearly 1,500 Suspicious Activity Reports (SARs).
Broker-dealers and national banks are required to file SARs in connection with suspected criminal activity that meets or exceeds certain dollar thresholds, among other suspicious activity. Broker-dealers such as Merrill Lynch are required to file a SAR for suspected criminal activity that involves aggregate funds or other assets of $5,000 or more. By contrast, national banks are required to file a SAR for suspected criminal activity totaling $25,000 or more where such activity does not involve insider abuse and where there is no substantial basis to identify a responsible suspect.
Following the 2009 merger between Merrill Lynch and Bank of America, N.A., Merrill Lynch incorrectly applied the $25,000 monetary threshold applicable to national banks, rather than the $5,000 threshold applicable to broker-dealers, when determining whether to file a SAR. As a result, Merrill Lynch failed to file approximately 1,500 SARs from January 2009 to November 2019, when the firm discovered and corrected its mistake. The suspicious activities that went unreported included alleged unauthorized debit card withdrawals, forged or altered checks, account intrusions, identity theft, and internet scams.
“Law enforcement and regulators depend on FINRA member firms to properly report potential fraud and other suspicious activities,” said Christopher J. Kelly, Senior Vice President and Acting Head of FINRA’s Department of Enforcement. “It is therefore essential that member firms comply with their SAR filing obligations. Merrill Lynch failed in this basic responsibility.”
FINRA issued Regulatory Notice 19-18 to provide guidance to member firms regarding suspicious activity monitoring and reporting obligations under FINRA Rule 3310 (Anti-Money Laundering Compliance Program). Firms can also review FINRA’s 2023 Exam Findings Report to understand FINRA’s areas of concern related to AML, as well as guidance and compliance training offered to firms about their AML compliance obligations.
In settling this matter, Merrill Lynch consented to the entry of FINRA’s findings, without admitting or denying the charges.
The Securities and Exchange Commission announced today that Merrill Lynch agreed to pay a $6 million penalty in a separate action concerning the same misconduct. FINRA appreciates the cooperation of the SEC.
About FINRA
FINRA is a not-for-profit organization dedicated to investor protection and market integrity. It regulates one critical part of the securities industry—brokerage firms doing business with the public in the United States. FINRA, overseen by the SEC, writes rules, examines for and enforces compliance with FINRA rules and federal securities laws, registers broker-dealer personnel and offers them education and training, and informs the investing public. In addition, FINRA provides surveillance and other regulatory services for equities and options markets, as well as trade reporting and other industry utilities. FINRA also administers a dispute resolution forum for investors and brokerage firms and their registered employees. For more information, visit www.finra.org.
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