Interactive Brokers LLC, a U.S based brokerage that skyrocketed between 2013 and 2018, has agreed to settle a total of $38 million with the SEC, CFTC and FINRA for violating AML practices. The brokerage had risen ranks within a span of five years to feature amongst the big players within the U.S industry. It also cleared more foreign institution transactions compared to other brokerages in the U.S at the time. Following settlement agreement, it now seems that the brokerage is ready to face to the music for neglecting proper AML procedures.
Notably, all the three financial watchdogs released a press release in light of the penalties imposed on Interactive Brokers LLC. Finra is set to receive $15 million while both the SEC and CFTC expect $11.5 million each from Interactive Brokers LLC. At the core, all the oversight bodies agree that Interactive Brokers failed in a number of instances in maintaining their KYC role as financial services provider. These sentiments were brought to light from different financial oversight perspectives but ultimately narrowed down to AML inefficiencies.
Finra particularly noted that Interactive Brokers did not surveil hundreds of millions of funds that were deposited with them, including those from countries perceived as ‘high risk’ by the U.S. It went to add that the brokerage was also under staffed, an issue that was raised in relation to report reviews but was not considered early enough. Furthermore, the Interactive Broker internal and external policies were also not well in tune to provide proper guidelines to stakeholders on how they should execute roles in compliance.
SEC on the other hand said that Interactive Brokers failed to file Suspicious Activity Reports (SARs) despite its underlying exposure to regulatory risk. It, therefore, made it difficult for the regulator to track suspicious activity in the dealings of Interactive Brokers. Marc Berger, SEC’s New York Regional Office Director has since noted that this is an important function and ought to have been fulfilled by Interactive Brokers,
“SAR filings are an essential tool in assisting regulators and law enforcement to detect potential violations of the securities laws, particularly in the microcap space.”
The CFTC’s basis was almost similar to SEC’s claims on failure to report SARs; this U.S Commodity Futures Trading Commission charged Interactive Brokers for slacking in checking its stakeholders who include agents, employees and officers. Other than the $11.5 million penalty, CFTC also ordered Interactive Brokers to disgorge $706,214 which was earned in a transaction where the regulator later moved to enforce action on the counterparty.