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Compliance Corner: SEC, Interactive Brokers

Editorial Staff, August 11, 2020


The latest compliance news: regulatory developments, punishments, guidance, permissions and new product and service offerings.

Interactive Brokers, SEC
The Securities and Exchange Commission, the US regulator, yesterday said that Interactive Brokers will pay an $11.5 million penalty to settle charges for repeatedly failing to file Suspicious Activity Reports for US microcap securities trades that it executed on behalf of its customers. 

In parallel actions, the Financial Industry Regulatory Authority and the Commodity Futures Trading Commission unveiled settlements with the firm related to anti-money laundering failures in which the registered broker-dealer agreed to pay penalties of $15 million and $11.5 million, respectively, for a total of $38 million in penalties paid to the three agencies.

Broker-dealers must file SARs for transactions suspected of involving fraud or showing a lack of an apparent lawful business purpose. According to the SEC’s order, over a one-year period, Interactive Brokers failed to file more than 150 SARs to flag potential manipulation of microcap securities in its customers’ accounts, some of the trading accounting for a significant portion of the daily volume in certain of the microcap issuers. 

Interactive Brokers did not recognize “red flags” concerning these transactions, failed to properly investigate suspicious activity as required by its written supervisory procedures, and failed to file SARs in a timely fashion even when suspicious transactions were flagged by compliance personnel.

“SAR filings are an essential tool in assisting regulators and law enforcement [agencies] to detect potential violations of the securities laws, particularly in the microcap space,” Marc P Berger, director of the SEC’s New York regional office, said. “Today’s multi-agency settlement reflects the seriousness we place on broker-dealers complying with their SAR reporting obligations and maintaining appropriate anti-money laundering controls.”

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