Financial Industry Regulatory Authority (FINRA)

Written By ESR News Blog Editor Thomas Ahearn

On July 29, 2019, the Financial Industry Regulatory Authority (FINRA) – which regulates brokerage firms doing business with the public in the U.S. – announced it had fined Citigroup Global Markets Inc. (CGMI) $1.25 million for failing to conduct timely or adequate background checks on more than 10,000 non-registered associated persons spanning a seven-year period, according to a news release from FINRA.

FINRA found CGMI failed to conduct proper background checks on approximately 10,400 non-registered associated persons from January 2010 through May 2017 and did not fingerprint at least 520 of those people until after they began working with CGMI, thus preventing the firm from determining whether any individuals were subject to statutory disqualification from associating with a FINRA member firm.

FINRA found that three individuals who were subject to statutory disqualification because of criminal convictions were allowed to associate, or remain associated, with the firm during the relevant period due to CGMI’s failure to maintain a reasonable supervisory system and procedures to identify and properly screen all individuals who became associated with the firm in a non-registered capacity.

“FINRA member firms must live up to their responsibility as a gatekeeper protecting investors from bad actors. It is important that firms appropriately screen all employees for past criminal or regulatory events that can disqualify individuals from associating with member firms, even in a non-registered capacity,” Susan Schroeder, Executive Vice President of FINRA’s Department of Enforcement, stated in the news release.

In November of 2017, FINRA announced it had fined J.P. Morgan Securities, LLC $1.25 million for failing to conduct adequate background checks on approximately 8,600 – or 95 percent – of its non-registered associated persons from January 2009 to May 2017. FINRA found that J.P. Morgan did not fingerprint roughly 2,000 of its non-registered associated persons in a timely manner for more than eight years.

Federal securities laws require broker-dealers to fingerprint certain associated persons working in a non-registered capacity to help identify if a person has been convicted of crimes that would disqualify them from being associated with a firm, absent explicit regulatory approval. Federal banking laws require banks to conduct similar checks on banking employees using a more limited list of disqualifying events.

Overseen by the Securities and Exchange Commission (SEC), FINRA writes rules and enforces compliance with federal securities laws, registers broker-dealer personnel, offers them education and training, and informs the investing public. FINRA also administers a dispute resolution forum for investors and brokerage firms and their registered employees. For more information, visit www.finra.org.

Employment Screening Resources® (ESR) – a leading global background check firm – undergoes annual SOC 2® audit reports that are vital to banks and financial institutions to confirm that the company meets high standards set by the American Institute of Certified Public Accountants (AICPA) for protecting the privacy, security, and confidentiality of consumer information. To learn more, visit www.esrcheck.com.

ESR provides financial industry background screening services to help protect banks and financial institutions against embezzlement, fraud, and identity theft. ESR also helps banks and financial institutions protect assets, limit liability, mitigate risk, and meet regulatory compliance requirements. To learn more, visit www.esrcheck.com/Background-Checks/Industry-Specific-Solutions/Financial/.

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