CICC US Securities
CICC US Securities was fined $300,000 for failing to establish and implement an AML compliance program that described the factors to consider when performing surveillance for potential market manipulation, including a description of the potential types of market manipulation or information about how such surveillance should be documented. The firm’s compliance program was not tailored to account for its business model and the types of customers and activities it served. The firm maintains omnibus affiliate account relationships in foreign jurisdictions, generates commissions from agency trading for institutional customers that trade in both U.S. and foreign securities, and engages in transactions involving foreign customers opening omnibus accounts. Despite this, the firm did not have a reasonable means of detecting suspicious activity in trades executed on non-U.S. stock exchanges, and as a result, it did not track activity that might have raised red flags of market dominance or manipulation by specific clients. Subsequently, the firm engaged an outside compliance consultant to recommend revisions to its AML procedures and compliance monitoring procedures, has implemented new procedures and training for all employees, and has implemented new surveillance and monitoring alert systems that include monitoring activity executed on certain non-U.S. exchanges.
Further, the firm did not reasonably review trades in low-priced securities by firm customers, and the firm’s written procedures for monitoring low-priced securities were not tailored towards its business activity and not effectively implemented by its compliance program. The firm later suspended low-priced securities trading and adopted revised WSPs for monitoring and supervising low-priced securities trades.
The findings also stated that the firm failed to establish and implement an AML program and supervisory system reasonably designed to detect and cause the reporting of potentially suspicious trading in its stock buyback business. A corporate entity and an individual affiliated with that corporate entity participated in the firm’s stock buyback program and repurchased shares of the corporate entity through an omnibus account at the firm’s foreign affiliate. Furthermore, the firm was aware that the trades occurred two days before an announcement that increased the corporate entity’s share prices. The volume and timing of the trades should have raised red flags for the firm, but it did not take reasonable steps to investigate the activity. The firm later suspended its stock buyback program, then adopted new WSPs for investigating and reporting suspicious activities and implemented new surveillance and monitoring alert systems.
The findings also included that the firm did not have a supervisory system or WSPs reasonably designed to ensure trades were accurately marked as “solicited” or “unsolicited.” The firm used an Order Management System for processing transactions that had a default setting that automatically marked every order as “unsolicited.” While it was possible to override the unsolicited tag by manually tagging an order as “solicited,” the firm and its representatives never made use of this functionality. Moreover, the firm had no WSPs for determining whether and when to mark an order as “solicited.” As a result, over 22,000 trades were marked “unsolicited” on the firm’s blotter and trade confirmations. Because the firm had no WSPs and did not conduct any supervisory reviews to ensure that trades were accurately marked, its supervisory system and procedures were not reasonably designed to achieve compliance with its recordkeeping obligations. The firm has since amended its WSPs to include guidance for determining whether a transaction should be marked “solicited.”
FINRA also found that the firm permitted three non-registered individuals to serve as authorized signatories for three firm bank accounts. The individuals’ access to the firm’s accounts gave them control over the cash and clearing accounts that comprise most of the firm’s net capital assets. As such, the individuals had the authority and discretion to commit the firm’s capital through authorized signatory access to its bank accounts. The firm later removed the individuals as signatories on bank accounts and revised its WSPs relating to individuals with authority over firm bank accounts to ensure only persons with the appropriate registration would have that authority going forward.
