Fraudulent BD Account Transfers on the Rise: FINRA
Bad actors can use information stolen from broker-dealer clients to open new accounts at other firms, or receiving members.
The Financial Industry Regulatory Authority is warning broker-dealers of a rise in the fraudulent transfer of client accounts through the Automated Customer Account Transfer Service, or ACATS.
In just-released Regulatory Notice 23-06, which is a follow-on to Regulatory Notice 22-21, FINRA cites potential indicators of ACATS fraud and shares effective practices to mitigate risks of such fraud.
Notice 22-21 alerted broker-dealers on how bad actors effect fraudulent transfers of client assets using ACATS and listed several existing regulatory obligations that may apply in connection with ACATS fraud and provided contact information for reporting the fraud.
FINRA states that its regulatory programs — through examinations and investigations, review of customer complaints and member firm engagement — have identified increased instances of ACATS fraud.
“Through recent industry engagement, FINRA has gained further insights from member firms and other industry representatives about their approaches to detect and mitigate the risk of ACATS fraud,” FINRA states.
ACATS is an automated system that facilitates the transfer of customer account assets from one firm to another. Notice 23-06 provides an overview of indicators of ACATS fraud and the practices some firms apply to address it.
The notice warns that a bad actor “may use the efficiencies ACATS offers to effect the fraudulent transfer of customer account assets — ACATS fraud — by opening a new brokerage account online or through a mobile application at another firm (receiving member) using stolen personal identifiable information of a legitimate customer of another member firm.”
The bad actor, FINRA states, “may then engage receiving and/or carrying members to conduct a transfer of the account of the legitimate customer at the carrying member into the new brokerage account at the receiving member.
“When that transfer is complete, the bad actor may then proceed with moving the ill-gotten assets out of the newly established brokerage account to another external account or financial institution,“ the regulator explains.
FINRA’s notice describes how broker-dealers can spot ACATS fraud, which includes a request for assets to be transferred to an external account or financial institution soon after a new account is opened, as well as changes in customer communication patterns.
The notice also describes practices that broker-dealers have implemented to mitigate the risk of ACATS fraud.
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