Enforcement Alert: Make sure you test systems that monitor fund transfers, case shows


FINRA has made it clear that you need to be careful that the transfer of customer assets to third parties has been approved by the customer, and that it’s not part of a rip-off scheme. A recent enforcement case demonstrates that it is serious about this issue.

The St. Louis-based firm Edward Jones paid FINRA a $200,000 fine after the SRO determined that the firm failed to test an automated system that was supposed to detect unusual transmittals of customer funds to third parties.

That lack of testing missed a technical flaw that caused the system to not function properly — a shortfall that didn’t spot a rep who siphoned more than $1 million out of customer accounts.

Edward Jones violated provisions in NASD Rule 3012 that require firms to verify that their supervisory systems for such transmittals are working correctly.

Please see full alert below for more information.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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