FINRA’s September 2024 Disciplinary Actions: Key Insights for Compliance Teams

In September 2024, FINRA released its monthly report on disciplinary actions, outlining numerous enforcement cases that are critical for compliance teams to review. This month’s actions highlight ongoing challenges in areas like unauthorized trading, misrepresentation, anti-money laundering (AML) deficiencies, and supervisory failures, especially concerning remote work environments. Below, we break down the most significant cases and explore the compliance lessons firms can take away from each one.

1. Unauthorized Trading

Several representatives were disciplined for executing trades without customer authorization, leading to both fines and suspensions. One case involved a representative who placed risky trades in customer accounts without securing permission, resulting in significant client losses. The firm failed to properly supervise the representative, highlighting a lack of internal control over trade approvals.

Penalty Details: The individuals involved faced multi-month suspensions and fines ranging from $10,000 to $50,000. Some firms were also penalized for not having adequate procedures in place to flag and address unauthorized trades.

?? Compliance Tip: Firms need to establish comprehensive trade authorization protocols and ensure customer consent is documented for every transaction. Supervisory reviews of trade activity should be frequent and detailed to detect potential unauthorized activity before it escalates into regulatory action.

How to Implement:

• Use technology to automate the trade approval process.
• Conduct periodic audits of trade history.
• Ensure supervisors have access to real-time alerts when trades are flagged as potentially unauthorized.

2. Misrepresentation and Fraud

FINRA also took action against firms and representatives involved in misrepresenting investment products. Several cases centered around misclassifying high-risk or speculative investments as “safe” or “low-risk,” misleading clients about the potential risks involved. This led to significant losses for retail investors, especially in the sale of alternative investments, such as structured products and non-traditional ETFs.

Penalty Details: Firms faced sanctions ranging from $50,000 to $150,000, and individual representatives were barred or suspended. These penalties reflect the seriousness of providing false or misleading information to investors.

?? Compliance Tip: It’s critical that compliance teams regularly review sales and marketing materials to ensure they accurately represent the products offered. Firms should also train representatives to communicate product risks transparently and avoid making blanket statements about the safety of high-risk investments.

How to Implement:

• Require a compliance review of all marketing materials, particularly for alternative investments.
• Incorporate mandatory training for representatives on proper disclosure of investment risks.
• Utilize risk assessment tools to categorize investments accurately and inform clients accordingly.

3. Anti-Money Laundering (AML) Deficiencies

Several firms were disciplined for AML program failures, including not detecting and reporting suspicious activity. In one prominent case, a firm failed to upgrade its AML policies to address new risks posed by digital currencies and emerging financial technologies. As financial crime methods evolve, compliance programs must keep pace to identify new red flags in areas like cryptocurrency transactions.

Penalty Details: Firms received fines ranging from $100,000 to $300,000 for failing to comply with AML requirements. In some cases, firms were also required to hire independent consultants to review and improve their AML programs.

?? Compliance Tip: Regularly update AML policies to address new risks, particularly in digital assets and emerging technologies. Staff should receive ongoing AML training to help them recognize suspicious activities. Transaction monitoring systems should also be continuously upgraded to detect complex patterns in financial movements.

How to Implement:

• Ensure your AML policies are up-to-date with the latest regulatory requirements.
• Perform annual AML audits and adjust for emerging risks, such as digital currencies.
• Train employees on evolving money-laundering techniques, and ensure prompt reporting of suspicious transactions.

4. Supervisory Failures

As remote work continues to expand, several firms were cited for failing to adequately supervise their remote employees, particularly around customer communications. In many cases, firms did not have proper systems in place to monitor interactions conducted over digital channels, which led to compliance lapses and missed regulatory requirements.

Penalty Details: Firms were fined $50,000 to $200,000 for not adequately supervising remote workers, with particular attention paid to lapses in email and chat monitoring systems.

?? Compliance Tip: It is essential to adapt supervisory practices to ensure that remote employees are subject to the same level of scrutiny as those in-office. This includes monitoring all digital communications channels, ensuring records are kept, and having real-time oversight of customer interactions.

How to Implement:

• Invest in compliance technology that monitors digital communications for policy violations.
• Develop remote supervision guidelines that mirror traditional office-based controls.
• Implement robust reporting systems for supervisors to review remote workers' activities.

5. Failure to Report Securities Holdings

FINRA disciplined several firms for failing to report securities holdings in a timely and accurate manner. These failures impede market transparency and violate FINRA’s reporting rules, which are essential for maintaining the integrity of the financial markets.

Penalty Details: Firms involved in these reporting failures faced fines between $75,000 and $250,000. The SEC and FINRA have emphasized the importance of accurate reporting to ensure that all market participants have access to reliable information.

?? Compliance Tip: Firms must ensure their reporting systems are current and designed to capture all required securities holdings accurately. Missing or incorrect filings can result in severe penalties and increased scrutiny from regulators.

How to Implement:

• Utilize automated reporting tools to ensure timely and accurate filings.
• Establish a compliance calendar with reminders for key reporting deadlines.
• Conduct periodic internal audits to verify the accuracy of reported data.

Key Compliance Lessons from FINRA’s September 2024 Report:

1. Unauthorized Trading: Strong trade authorization systems and supervisory oversight are non-negotiable to avoid regulatory action.
2. Misrepresentation: Accurate and transparent communication with clients is essential, particularly for complex financial products.
3. AML Compliance: Updating AML programs to handle new risks like cryptocurrencies and emerging technologies is critical.
4. Supervision in Remote Work: Remote supervision must be as rigorous as office-based oversight to prevent compliance gaps.
5. Timely Reporting: Ensure that all securities reporting obligations are met to avoid penalties and maintain market integrity.

For more details, view the full report: FINRA Disciplinary Actions - September 2024

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