Government and industry regulators have recently fined Merrill Lynch $12 million for their alleged failure to file Suspicious Activity Reports (SARs) over a period of more than a decade. These reports are meant to flag transactions that are suspected to be involved in criminal activity.
Both the Securities and Exchange Commission and the brokerage industry self-regulator, Finra, have announced $6 million settlements with Merrill Lynch. The settlements claim that the wealth manager’s anti-money-laundering policies and procedures relied on a $25,000 threshold for reporting suspicious transactions, which was deemed inappropriate.
Federal regulations stipulate that the SAR requirement for national banks, such as Merrill Lynch’s parent company Bank of America, is triggered when there is no reasonable basis for identifying a suspect and the transaction exceeds $25,000. However, it was found that when operating as a broker-dealer during the relevant period, Merrill Lynch should have followed a lower reporting threshold of $5,000.
Katharine Zoladz, co-acting regional director of the Securities and Exchange Commission’s Los Angeles regional office, emphasizes the importance of broker-dealers reporting suspicious activity in their accounts. She states that Merrill Lynch and its parent company failed to comply with this essential requirement for a SAR program.
Regulators acknowledged Merrill Lynch’s cooperation in the investigation after the firm voluntarily reported the alleged misconduct. Merrill Lynch settled the matter by accepting the fines and a censure without admitting or denying the allegations. The firm has also made modifications to its policies to enhance compliance.
“After conducting an internal review, we promptly reported this matter to regulators and have since improved our process and training regarding these filings,” the firm stated.
Recent Penalties Against Bank of America
In response to these allegations, Bank of America claims to have already addressed the issue internally, refunding the affected customers. The company also made significant changes in their fee structure by reducing overdraft fees and completely eliminating non-sufficient fund fees. These adjustments have resulted in a remarkable 90% decrease in revenue from these fees.
Christopher Kelly, Finra’s acting head of enforcement, emphasizes the importance of member firms fulfilling their SAR filing obligations, as law enforcement and regulators rely on their reporting to identify potential fraud and suspicious activities. He states that Merrill Lynch failed to fulfill this fundamental responsibility.
These recent penalties serve as a reminder to financial institutions of the significance of adhering to regulatory requirements and conducting business ethically. As banks continue to face scrutiny, the focus on consumer protection and regulatory compliance remains crucial in maintaining public trust.
