Newbridge Securities Corporation

Newbridge Securities Corporation was fined $125,000 for findings that its AML program was not reasonably designed to achieve compliance with Customer Identification Program (CIP) and Customer Due Diligence (CDD) requirements. The findings stated that the firm’s CIP procedures were not reasonably designed to address the higher identity verification risk posed by customers.

The firm’s CIP procedures did not specify when and under what circumstances the firm was required to use documents, non-documentary methods, or a combination of both to verify customers’ identities and failed to explain when non-documentary verification methods must be performed.

The firm’s CDD procedures were not reasonably designed to enable the firm to understand the nature and purpose of new customer relationships for the purpose of developing a customer risk profile. The procedures failed to define when the firm would deem an account to be “higher risk,” who would make that determination, and how that determination would be documented.

 The procedures also failed to state when financial statements, banking references or other supporting documents or information should be obtained as part of the CDD process.

Furthermore, the firm’s CDD procedures did not require the firm to identify and verify the identity of the beneficial owners of legal entity customers, and instead stated that the firm “may” obtain information concerning beneficial owners only for “higher risk” accounts.

In addition, the firm failed to comply with CIP and CDD requirements when it opened new accounts for individual customers and legal entity customers referred by a China-based issuer for the purpose of opening new accounts and investing in the issuer’s anticipated small capitalization Initial Public Offering (IPO). During the new account opening process for these customers, a representative of the issuer handled almost all communications with the firm regarding the account opening and funding process. The firm’s representatives never met any of the customers face-to-face.

 For each customer, the issuer provided the firm with photocopies of unexpired government issued identification evidencing nationality and residence and bearing a photograph. In addition, the firm conducted background checks on the customers using third-party vendors. These steps were not reasonable, however, given the heightened risks presented by these customers and multiple indicators that the firm did not have a reasonable belief that it knew the true identity of the customers.

Despite the indicators, the firm failed to take reasonable steps to verify the customers’ true identities or conduct ongoing customer due diligence. The firm’s CIP and CDD failures allowed the customers to open and maintain accounts in the face of ample information that raised concerns that the customers were not bona fide and were controlled by the issuer.

The firm’s AML compliance officer (AMLCO) believed these accounts posed “higher risk,” but the AMLCO failed to document any such determination and also failed to inform other firm supervisors with AML responsibilities of any such determination.

After its clearing firm raised questions and concerns about the customers, the firm declined to serve as underwriter for the offering, and the IPO did not proceed.