| 26 October 2009

Scottrade was slapped with a $600,000 fine today by FINRA for failing to adequately supervise suspicious transactions. The fine dates back to a lack of oversight in the firm from April 2003 to April 2008. As is typical with FINRA settlements, Scottrade neither admitted nor denied any wrongdoing.

The Bank Secrecy Act and FINRA regulations require that firms establish procedures to track suspicious activity or movements of money. The methods used to monitor activity must be consistent with the company's operating environment. In other words, if you're an online broker that allows large volumes of unassisted trading you must have equally sufficient automated tracking efforts in place.

"In this case," said Susan L. Merrill, FINRA's Chief of Enforcement, "despite the large volume of on-line trading at Scottrade, the firm failed to establish any systematic or automated surveillance until 2005. Then, the automated system the firm implemented remained inadequate because it focused only on suspicious trading that was accompanied by suspicious money movement."

The fine and the announcement is, in many ways, just way for FINRA to send a friendly reminder to all firms why monitoring of customer accounts and activity is important. Specifically, identity theft is a concern as is using accounts to create multiple complex securities transactions to launder money.

In February 2005 Scottrade implemented its own, proprietary automated monitoring system that triggered 1,300 alerts per month at the firm. One analyst was assigned to review the alerts and not all alerts were reviewed. FINRA called the procedures inadequate.

There is no word from FINRA whether additional firms are under similar investigations. FINRA last used the anti-money laundering regulation to shut down Maximum Financial Group, a Michigan foreign currency operation, in August. In January of this year a unit of E*TRADE Financial (ETFC) was fined $1 million for an inadequate money laundering program. Banc of America Investment Services, a unit of Bank of America (BAC), was fined $3 million in January 2007.