FINRA Provides Advice for BDs to Fight Fraud

However, he went on to say: "Making sure that you revisit that approach, making sure that" anti-money laundering (AML) or "compliance teams are receiving those referrals from the operations teams in these situations" is important "because it's something that we're seeing more concerted efforts in terms of rings or organized activity, [if] you could piece together a number of accounts into a single action that would be beneficial for us and for law enforcement to have."

It is important for FINRA and its member firms to think about fraud broadly, he also told listeners, because "fraud does affect the firm's bottom line," he pointed out.

Fraud is an operational loss that he warned can impact a firm's revenues and also "impacts their relationships with their clients," he explained. "Foundationally, when I think about expectations of clients or customers, that foundational expectation is they bring their money to a firm and the firm is going to be able to maintain it. They're not going to lose control of it, lose custody of it. And that's exactly what is happening in a lot of the fraud scenarios and situations that we're seeing."

In at least some cases, successful fraud incidents are "no fault of the firm, but it could be client behaviors that are leading to that fraud," he also said. And exactly why BDs and their clients are such popular targets among scammers can be chalked up to one simple explanation. It's the "old adage that I love to keep bringing up from my FBI days" and that is: "Why do people rob banks? Because that's where the money is," he said.

After all, if you are in a business that "custodies and or facilitates money or money movement, you're going to be attractive to criminal enterprises," he noted.

BDs have also been targeted because they are no longer just buying and selling securities like they used to, he explained. There has been a significant increase in the number of products and services BD firms are offering and there is also connectivity to third-party services, he noted. For example, clients can connect their brokerage accounts to banking and other online payment services including PayPal, Square and Venmo, he said.

It can be tempting to think that, "as long as we're monitoring our securities purchases and looking for the red flags … required under the BSA or AML requirements we're covered and we're doing everything regulatory required of us," he noted.

But he stressed that it also important to be thinking "one step further" and "really understanding your clients and customers and what they're doing, not only at your institution, but how those funds are coming to or leaving your institution," he said. For example, BDs should be on the lookout for clients who seem to be logging in "from a foreign country or odd hours at night," he suggested.

Mitigation steps taken by BDs "will cause the fraudsters to move to points of lesser resistance," he went on to say.