← Broker database 2023-05-05
Brokers International Financial Services Fined for Failure to Supervise Outside Brokerage Accounts
According to FINRA, Brokers International Financial Services, LLC was censured, fined $30,000, and required to remediate its supervisory system and conduct a comprehensive review of outside brokerage accounts to detect potential violations including insider trading and frontrunning.
The firm failed to establish and maintain a supervisory system reasonably designed to supervise outside brokerage accounts disclosed by its registered representatives. The firm's written procedures did not identify steps to verify that the firm actually received and reviewed duplicate statements for each outside account. The procedures also failed to specify how supervisors should review statements for red flags of potential violations, how often reviews should occur, and how reviews should be documented.
By failing to review statements from all outside accounts, the firm could not detect warning signs of potential misconduct. The firm limited its review to a manual process conducted by supervisors, which was unreasonable given the volume of monthly statements. The manual review process also did not facilitate identification of patterns of activity over time or across accounts, making it difficult to spot concerning trading behaviors.
FINRA ordered the firm to certify completion of remediation and to conduct a comprehensive review of all available records related to outside brokerage accounts during the relevant period. If the review identifies customers harmed by any misconduct, the firm must pay restitution with interest.
This case emphasizes the importance of robust supervisory systems for monitoring registered representative activities in outside accounts. Such accounts can present opportunities for misconduct including insider trading, frontrunning, and other prohibited practices. Investors should understand that their brokers' outside trading activities are subject to firm supervision and regulatory oversight.