The Financial Industry Regulatory Authority (FINRA) has hit California-based securities broker, SageTrader, with a censure order and fine of $100,000 for failing to establish and implement anti-money laundering (AML Anti-Money Laundering (AML) Anti-money laundering (AML) is a term that describes laws, processes, and regulations that are intended to prevent illegally obtained funds from being disguised as income gained through legitimate means. The fundamental purpose of the AML laws is to help safeguard, detect, and report suspicious activity including the predicate offenses to money laundering and terrorist financing, such as securities fraud and market manipulation.Most exchanges have AML measures that include identity verification Anti-money laundering (AML) is a term that describes laws, processes, and regulations that are intended to prevent illegally obtained funds from being disguised as income gained through legitimate means. The fundamental purpose of the AML laws is to help safeguard, detect, and report suspicious activity including the predicate offenses to money laundering and terrorist financing, such as securities fraud and market manipulation.Most exchanges have AML measures that include identity verification Read this Term) policies and procedures “reasonably expected to detect and cause the reporting of suspicious activity.”

According to the American private securities regulator, SageTrader’s AML failure, which violates FINRA Rules 3310(a) and 2010, happened between April 2016 and December 2019. The details are contained in a Letter of Acceptance, Waiver and Consent filed by SageTrader and accepted by FINRA on Tuesday.

The new pecuniary penalty comes six months after FINRA fined SageTrader $775,000 for failing to supervise potentially manipulative trading conducted on its systems between 2013 and 2019. The securities regulator said SageTrader has agreed to pay the new fine without admitting or denying its findings.

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FINRA Faults SageTrader’s ‘Three-Strike’ Policy

According to FINRA, SageTrader between April 2016 and June 2018 operated a "three-strike" policy where it [SageTrader] only considered filing a suspicious activity report (SAR) against a single trader only after it had undergone three phases: first, issued a warning, second, suspended the trader for a day and, third, denied them access to its platform on the third warning.

Furthermore, the regulator noted that although SageTrader during the stated period removed certain traders from its platforms based on a notice from external regulators or executing brokers, it again did not consider filing an SAR.

In addition, FINRA said between June 2018 and December 2019, SageTrader replaced its “three-strike policy” with a “one-strike” policy under which it terminated a suspected trader’s access to its platform only after a single warning. However, despite this change in procedure, the securities broker still did not consider filing an SAR.

FINRA explained that this meant SageTrader’s AML policy and procedures were insufficient to detect and report SARs. Moreover, the regulator faulted SageTrader for committing the duty of reviewing all of its suspicious activity alerts to a single compliance Compliance In finance, banking, investing, and insurance compliance refers to following the rules or orders set down by the government regulatory authority, either as providing a service or processing a transaction. Compliance concerning finance would also be a state of being following established guidelines or specifications. This designation can also encompass efforts to ensure that organizations are abiding by both industry regulations and government legislation. Understanding ComplianceCompliance is a In finance, banking, investing, and insurance compliance refers to following the rules or orders set down by the government regulatory authority, either as providing a service or processing a transaction. Compliance concerning finance would also be a state of being following established guidelines or specifications. This designation can also encompass efforts to ensure that organizations are abiding by both industry regulations and government legislation. Understanding ComplianceCompliance is a Read this Term officer without any AML supervisory experience or training.

“From April 2016 through December 2019, SageTrader did not tailor its AML program to reasonably monitor for and report suspicious activity in light of the firm’s business model and customer base. SageTrader’s system for detecting and causing the reporting of suspicious activity was predicated on its review of alerts generated by its automated third-party surveillance system,” FINRA added.