More On Legal & Compliancefrom The Advisor's Professional Library
- Preventing and Dealing with Client Complaints Although the SEC has not provided specific guidance on how client complaints should be handled, a firms policies and procedures should provide clear direction how to do so, as neglecting complaints can exacerbate a bad situation.
- Client Communication and Miscommunication RIA policies and procedures must specify what type of communications should be retained. The safest course of action is for RIAs to retain all communicationsto clients, from clients, and about client accounts. To comply with fiduciary obligations, communications must be thorough and not mislead.
The Financial Industry Regulatory Authority said Monday that it has filed a complaint against Los Angeles-based Wedbush Securities Inc. for systemic supervisory and anti-money laundering violations in connection with providing direct market access and sponsored access to broker-dealers and nonregistered market participants.
During the period at issue, FINRA says that Wedbush was one of the securities industry’s largest market access providers, which included overseas high-frequency, high-volume, algorithmic day-trading firms, and made millions of dollars from its market access business.
The Securities and Exchange Commission announced charges in early June against the firm, based in Los Angeles, and two officials accused of violating the agency’s market access rule, which requires firms to have adequate risk controls in place before providing customers with access to the market.
The SEC in its charge alleges that Wedbush, which the agency said has consistently ranked as one of the five largest firms by trading volume on Nasdaq, failed to maintain direct and exclusive control over settings in trading platforms used by its customers to send orders to the markets.
The FINRA complaint alleges that from January 2008 through August 2013, Wedbush failed to dedicate sufficient resources to ensure appropriate risk management controls and supervisory systems and procedures. "This enabled its market access customers to flood U.S. exchanges with thousands of potentially manipulative wash trades and other potentially manipulative trades, including manipulative layering and spoofing," FINRA states.
“Despite its obligations to monitor, review and detect suspicious and potentially manipulative trades, Wedbush largely relied on its market access customers to self-monitor and self-report such trading without sufficient oversight and controls to detect ‘red flags,’” FINRA said.
FINRA also alleges that despite receiving notice of regulatory and compliance risks associated with its market access business — including published industrywide notices, disciplinary decisions taken against other industry participants and multiple self-regulatory organization inquiries and examinations — Wedbush’s regulatory risk management controls and supervisory procedures were not reasonably designed to manage such risks, and, in fact, created incentives that rewarded Wedbush compliance personnel with compensation based on market access customer trading volume. Additionally, the complaint alleges that the firm failed to establish, maintain and enforce adequate AML policies and procedures, and failed to report suspicious and potentially manipulative transactions.
FINRA notes that the issuance of a disciplinary complaint represents the initiation of a formal proceeding by FINRA in which findings as to the allegations in the complaint have not been made, and does not represent a decision as to any of the allegations contained in the complaint.
Under FINRA rules, a firm or individual named in a complaint can file a response and request a hearing before a FINRA disciplinary panel.
Check out SEC Charges Wedbush Securities With Violating Market Access Rule on ThinkAdvisor.