Merrill Lynch was assessed penalties totaling $12 million by the Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA) for allegedly failing to file nearly 1,500 required suspicious activity reports (SARs) over the course of a decade.
On Tuesday, the SEC and FINRA each announced fines of $6 million against the broker-dealer. The SEC also cited BAC North America Holding Co. (BACNAH), Merrill Lynch’s parent company, for its role in the alleged failures.
The details: Following the 2009 merger between Merrill Lynch and Bank of America, BACNAH assumed responsibility for creating and implementing Merrill Lynch’s SAR policies and procedures and filing its reports, according to the SEC. During this transition, BACNAH incorrectly applied a $25,000 threshold for reporting suspicious activity, when it should have been $5,000.
The Bank Secrecy Act applies the $25,000 threshold to national banks (i.e., Bank of America), while the $5,000 threshold is applied to broker-dealers (i.e., Merrill Lynch).
As a result of the alleged misconception, Merrill Lynch failed to file approximately 1,500 SARs from January 2009 to November 2019, according to FINRA’s press release. The firm self-identified and corrected the issue.
Suspicious activities that went unreported included alleged unauthorized debit card withdrawals, forged or altered checks, account intrusions, identity theft, and internet scams, said FINRA.
“Broker-dealers have a critical obligation to report suspicious activity in their accounts,” said Katharine Zoladz, co-acting regional director of the SEC’s Los Angeles regional office, in an agency press release. “Merrill Lynch and BACNAH did not file hundreds of Merrill Lynch SARs because they failed to comply with one of the most basic requirements for a SAR program.”
Compliance considerations: Between October 2019 and May 2020, Merrill Lynch amended its written procedures and surveillance systems to reflect the correct threshold; trained employees responsible for investigating suspicious activity and filing SARs; and self-reported its apparent violations to FINRA, the SEC, and the Treasury Department’s Financial Crimes Enforcement Network, according to FINRA.
The firm filed 865 missing SARs after looking back to 2014.
Company response: “Following an internal review, we reported this matter to regulators and have enhanced our process and training regarding these filings,” said a Merrill Lynch spokesperson in an emailed statement.
The firm neither admitted nor denied FINRA’s or the SEC’s findings.
July 5, 2023 Published by The Compliance Week News.
