SEC Issues Risk Alert on Unauthorized Trading in Brokerage, Advisory Accounts

The Securities and Exchange Commission on Monday released a Risk Alert to help firms prevent and detect unauthorized trading in brokerage and advisory accounts.

The Risk Alert issued by the agency’s Office of Compliance Inspections and Examinations notes that although broker-dealers and investment advisors are subject to different regulatory requirements, both face similar risks of financial and reputational losses arising from unauthorized trading.

Says the SEC: “Unauthorized trading can include rogue trades in customer, client, or proprietary accounts or trades that exceed firm limits on position exposures, risk tolerances, and losses. Unauthorized trading can be done by traders, assistants on trading desks, portfolio managers, brokers, risk managers, or other personnel, including those in administrative positions in a firm’s back office.”

Carlo di Florio, director of OCIE, said in a statement announcing the alert that “unauthorized trading is not a new problem, and the risks it poses should be a perennial concern to financial firms as well as to regulators.” The Risk Alert’s observations should be helpful for firms “as they review their compliance and supervisory controls to detect and deter unauthorized trading,” he said.