On May 20, FINRA announced settlements requiring two member firms to pay more than $1.1 million over alleged AML and supervisory violations involving low-priced securities transactions, ordering one firm to pay $610,000 and the other to pay $550,000. FINRA alleged that both firms had AML programs that were not reasonably designed to detect and report suspicious activity in low-priced securities, and further asserted that limited liquidity, volatility, and sparse public information increased the risk of manipulation and fraud involving those securities. FINRA stated that one firm did not promptly address AML deficiencies flagged by another regulator in June 2021 and, until February 2023, used manual daily reports that lacked the historical or aggregated information needed to identify suspicious trading patterns. FINRA also cited alleged failures involving foreign financial institution correspondent-account due diligence, registration statement requirements, TRACE reporting, and customer-confirmation requirements.

According to FINRA’s findings, from February 2022 to March 2023, one firm executed approximately $300 million in low-priced securities transactions involving more than 150 million shares, including nearly $30 million in over-the-counter securities. Additionally, FINRA alleged that the other firm: (i) operated an overnight trading platform that accounted for approximately 95 percent of overnight-session trading volume since inception; (ii) had not aligned its AML and supervisory systems with its business risks since at least January 2023; (iii) relied primarily on one employee’s manual review of two reports; (iv) did not monitor for spoofing, layering, or other manipulative order-entry patterns; and (v) agreed to certify remediation of the AML and supervisory issues identified by FINRA. The firms consented to FINRA’s findings without admitting or denying the charges.