Regal Securities was fined by FINRA for deficiencies in surveillance

Background

Financial Industry Authority (FINRA) has fined Regal Securities, Inc $50,000. According to FINRA, from August 2017 through January 2019, Regal did not establish and maintain a supervisory system, including written procedures, reasonably designed to achieve compliance with FINRA rules regarding surveilling for potentially manipulative trading.

According to the report, in July 2017, a Regal branch manager assist a customer who did not meet the qualification to open a new account on August 10, 2017.

The firm delegated responsibility for the supervision of this customer‘s trading to the branch manager and another registered representative responsible for the account, both of whom were registered with FINRA as General Securities Principals. Both registered representatives provided the firm with assurances that they would monitor the customer’s account activity.

However, This customer began trading in the new account on August 22, 2017. Initially, some of the customers trading generated firm surveillance alerts indicating potential marking the close activity on August 23, 24, 28, and 29, 2017. Then, on August 31, a Regal executive informed the account representative that the account may need to be closed due to this trading activity.

While surveillance alerts were being generated, Regal Securities failed to review them or take any action regarding the customer at that time.

During that period, the customers trading activity were suspected to be illegal and triggered numerous alerts. Between November 2017 and June 2018, the customers trading activity generated approximately 40 surveillance alerts indicating potential wash trading.

FINRA Response

FINRA claimed that Regal‘s WSPs did not describe how alerts were to be reviewed, or how those reviews were to be documented. Moreover, the firm did not evidence that reviews were in fact conducted to determine whether the activity was manipulative, except for in a small number of instances. In addition, neither representative on the account escalated any concerns about the customer’s trading to the compliance department, and the compliance department did not otherwise follow up with the representatives after forwarding the alerts for review.

Regal also failed to establish a supervisory system reasonably designed to detect another potentially manipulative trading. The firm had no surveillance to detect layering or similar activity until January 2019.