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July 11, 2023 - The Financial Industry Regulatory Authority (FINRA) has handed down a $6 million penalty to Merrill Lynch for its sustained failure to meet the standards required by the Bank Secrecy Act. The firm has been faulted for its lax application of reporting thresholds, missing nearly 1,500 suspicious transactions over a decade.
Broker-dealers like Merrill Lynch and national banks have an obligation to report suspected illicit activity exceeding specific monetary thresholds. For broker-dealers, this threshold stands at $5,000 in aggregate funds or other assets. National banks have a higher threshold of $25,000, provided there is no substantial evidence to identify a suspect or if the activity does not involve internal abuse.
The inconsistency in Merrill Lynch's reporting emerged following its 2009 merger with Bank of America, N.A. It mistakenly applied the $25,000 threshold designated for national banks instead of the broker-dealer threshold of $5,000. This miscalculation led to the firm failing to file about 1,500 Suspicious Activity Reports (SARs) from January 2009 until November 2019, when the error was detected and rectified.
The unreported activities included alleged unauthorised debit card withdrawals, falsified or altered checks, account breaches, identity theft, and internet scams.
Christopher J. Kelly, Senior Vice President and Acting Head of FINRA’s Department of Enforcement, highlighted the critical role of FINRA member firms in reporting potential fraud and other suspicious activities. He noted, "It is therefore essential that member firms comply with their SAR filing obligations. Merrill Lynch failed in this basic responsibility.”
FINRA's Regulatory Notice 19-18 offers guidance to member firms on the obligations of monitoring and reporting suspicious activity under FINRA Rule 3310 (Anti-Money Laundering Compliance Program).
Merrill Lynch has accepted FINRA’s findings and the penalty but has not admitted or denied the charges.
The Securities and Exchange Commission also announced that Merrill Lynch has agreed to pay a $6 million penalty in a separate action related to the same misconduct. FINRA has acknowledged the cooperation of the SEC in this matter.
