Firms Failed to Subject Over 200,000 New Accounts to Identity Verification
WASHINGTON — The Financial Industry Regulatory Authority (FINRA) today announced that it has ordered two St. Louis-based broker-dealers under common control, Wells Fargo Advisors (WFA) and Wells Fargo Advisors Financial Network (WFAFN), to pay a joint fine of $1.5 million for anti-money laundering (AML) failures. For nine years, the firms failed to comply with a key aspect of the anti-money laundering compliance program for broker-dealers by failing to subject approximately 220,000 new customer accounts to the required identity-verification process.
As part of the AML compliance program requirements, broker-dealers must establish and maintain a written Customer Identification Program (CIP) that enables them to verify the identity of each customer opening a new account. Through the CIP, the broker-dealer must obtain and verify certain minimum identifying information from each customer prior to opening an account, maintain records of that identity-verification process, and provide customers with notice that information is being collected to verify their identities.
FINRA found that the firms' CIP system was deficient, as the electronic systems supporting it contained a design flaw, which persisted from 2003 to 2012. When the firms' transaction-processing system assigned customer identifiers to new customer accounts, it sometimes recycled identifiers previously assigned to accounts that had been closed. When that recycled identifier was transmitted to the firms' CIP system for verification of customer identities, the system did not recognize it as being assigned to new customer accounts, and therefore did not subject those new customers to identity verification. This resulted in the failure to conduct customer identity verification for nearly 220,000 new accounts. Further, approximately 120,000 accounts that had never been subjected to identity verification were already closed when the problem came to light.
Brad Bennett, FINRA's Executive Vice President and Chief of Enforcement, said, "Firms must be vigorous in the testing of their electronic systems to ensure they are operating correctly, including those designed to ensure compliance with critical aspects of the AML rules. While the firms eventually discovered the flaw in their own systems, it took far too long, resulting in hundreds of thousands of accounts to open and often close without the required identification process ever taking place."
In settling this matter, WFA and WFAFN neither admitted nor denied the charges, but consented to the entry of FINRA's findings.
FINRA's investigation was conducted by the Departments of Enforcement and Member Regulation.
Investors can obtain more information about, and the disciplinary record of, any FINRA-registered broker or brokerage firm by using FINRA's BrokerCheck. FINRA makes BrokerCheck available at no charge. In 2013, members of the public used this service to conduct 16.5 million reviews of broker or firm records. Investors can access BrokerCheck at www.finra.org/brokercheck or by calling (800) 289-9999. Investors may find copies of this disciplinary action as well as other disciplinary documents in FINRA's Disciplinary Actions Online database.
FINRA, the Financial Industry Regulatory Authority, is the largest independent regulator for all securities firms doing business in the United States. FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. FINRA touches virtually every aspect of the securities business – from registering and educating all industry participants to examining securities firms, writing rules, enforcing those rules and the federal securities laws, and informing and educating the investing public. In addition, FINRA provides surveillance and other regulatory services for equities and options markets, as well as trade reporting and other industry utilities. FINRA also administers the largest dispute resolution forum for investors and firms. For more information, please visit www.finra.org.