Canaccord Genuity LLC
Canaccord Genuity LLC was fined $20 million for failing to establish and maintain a supervisory system reasonably designed to supervise its securities transactions. The findings stated that the firm’s trading compliance group failed to review most of the firm’s surveillance reports for extended periods.
From October 2016 through May 2022, more than three quarters of the firm’s daily trade surveillance reports were unreviewed for at least a year, over a quarter for at least three years, and some for over five years. The unreviewed reports concerned subject matters such as market manipulation, best execution, trading ahead of customer orders, Regulation SHO, Regulation National Market System (NMS), trade reporting, limit order display, market access, and others. Most of the reports were reviewed on electronic platforms that recorded details about whether and when the reports had been reviewed, but neither the AML compliance officer nor the head of the trading compliance group checked this readily accessible evidence of review for over four years and did not take reasonable steps to supervise the trading compliance staff.
The findings also stated that the firm failed to develop and implement a reasonably designed AML compliance program. The firm did not establish and implement policies and procedures reasonably expected to detect and cause the reporting of suspicious transactions. Despite the firm’s high volume of low-priced trading presenting high risk, the trading compliance group’s review of surveillance reports escalated only two instances of potentially suspicious trading activity in 2017, one in 2018, four in 2019, and 13 in 2020.
In addition, the firm failed to implement a reasonably designed due diligence program for foreign financial institution correspondent accounts. The firm also did not reasonably train its trading compliance group on AML and its AML testing was not reasonable. Furthermore, the firm’s AML program did not include appropriate risk-based procedures to develop customer risk profiles for its institutional customer business and maintain and update customer information.
The findings also included that the firm provided falsified information to FINRA in response to requests made pursuant to FINRA Rule 8210. The firm learned that a compliance officer had been placing the electronic signature of a designated principal on several of its regulatory filings and, in doing so, making certifications the compliance officer knew to be false but did not impose heightened supervision or change her job duties, which included responding to regulatory requests. Subsequently, the compliance officer knowingly falsified evidence of her and other trading compliance staff’s review of trade surveillance reports and provided that falsified evidence to FINRA to give the false impression that certain trade surveillance reviews had been performed when they had not.
FINRA found that the firm did not comply with, or reasonably supervise for compliance with, FINRA’s best execution rule. The firm did not conduct regular and rigorous reviews of execution quality or supervise for compliance with FINRA Rule 5310 and 5310.09. The firm also had an unreasonably designed surveillance report for, and failed to achieve, best execution for internalized orders in NMS securities.
FINRA also found that the firm published inaccurate quarterly Rule 606 reports that included the same material aspects disclosures for all routing venues, without appropriately describing the specific relationships between the firm and each venue.
In addition, FINRA determined that the firm did not comply with Rule 611 of Regulation NMS and traded through protected quotations. The reports the firm used were not reasonably designed to prevent trade-throughs of protected quotations, leading it not to detect when it traded through thousands of protected quotations without a valid exception.
Moreover, FINRA found that the firm effected 1,224 trades in over-the-counter (OTC) securities as the executing firm during 84 halts and three market-wide circuit breakers and 561 trades in NMS securities as the executing firm during three halts, four pauses, and one market-wide circuit breaker. The firm also effected 526 trades as the contra firm involving OTC and NMS securities during one trading pause and two market-wide circuit breakers.
Furthermore, FINRA found that the firm had no supervisory reviews to determine whether it traded ahead of customer orders in grey market securities. The firm’s supervisory system did not include a reasonable process to determine whether it traded ahead of modified orders in OTC securities. As a result, the firm failed to identify instances in which it traded ahead of customer orders in grey market securities and traded ahead of modified customer orders in other OTC securities.
The findings also stated that the firm did not comply with limit order display obligations.
The findings also included that the firm lacked a supervisory system reasonably designed to comply with Section 5 of the Securities Act of 1933 and contravened Section 5. The firm did not conduct inquiries into the facts surrounding unregistered sales of securities from customer accounts to form reasonable grounds to believe that transactions were exempt. As a result, the firm facilitated the sale of unregistered securities not subject to an exemption from registration of at least two issuers in that time.
