The Financial Industry Regulatory Authority (FINRA) has imposed a fine of $1.5m on two brokerage units of Wells Fargo and Co for failing to comply with anti-money laundering (AML) regulations.
FINRA found that Wells Fargo Advisors and Wells Fargo Advisors Financial Network failed to properly conduct a required identity verification process on approximately 220,000 new client accounts between 2003 and 2012.
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According to the AML compliance program requirements, broker-dealers should effectively provide and maintain a written Customer Identification Program (CIP) that allows them to verify the identity of each customer opening a new account.
The agency said the Wells Fargo computer system contained a design flaw that sometimes recycled old client identification information for new client accounts and caused failures in identifying some accounts as new.
FINRA added that approximately 120,000 accounts that were not subjected to identity verification procedures were closed before the firms were aware of the design flaw.
The problem affected more than 3% of the 6.9 million customer accounts across the two units during the nine-year period.
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By GlobalDataWells Fargo & Co neither admitted nor denied FINRA’s allegations, the regulator said.
Brad Bennett, executive vice president and chief of enforcement at FINRA, 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," he added.
