BCS Global Markets

The Ultima Global Markets (USA), Inc. fka BCS Global Markets was fined $100,000 for failing to establish and implement an AML program that could be reasonably expected to detect and cause the reporting of potentially suspicious activity relating to low-priced securities transactions in correspondent accounts controlled by the firm’s affiliated foreign financial institutions (FFIs), who traded on behalf of undisclosed customers.

The findings stated that the firm facilitated at least 332 low-priced securities transactions on behalf of these FFIs. The net principal value of these trades amounted to approximately $27.5 million. The firm did not reasonably tailor its program to its business model, including with respect to transactions made by its affiliated FFIs.

The firm relied on daily exception reports generated by its clearing firm to monitor low-priced securities transactions, but the default parameters provided by the clearing firm for the reports excluded all of the firm’s trading in low-priced securities. The firm also lacked a reasonable means of assessing a customer’s trading in proportion to the daily trading volume of the security. Moreover, even when the firm identified low-priced securities transactions based on these reports, it failed to appropriately investigate the identified trades.

The findings also stated that the firm failed to establish and implement a reasonably designed due diligence program for correspondent accounts of FFIs, including by failing to conduct periodic reviews of account activity to determine whether the activity was consistent with the type, purpose, and anticipated activity of the account. The firm failed to obtain sufficient information on the nature of the FFIs’ businesses and their anticipated trading activities.

While the firm knew the FFIs could use their correspondent accounts to trade on a principal or proprietary basis, or to facilitate their underlying customers’ orders, it lacked an understanding of when, if at all, the affiliated FFIs were in fact trading on behalf of their own customers or on their own behalf, even though the FFIs were transacting in low-priced securities, which can pose a higher risk of illicit activities.

The firm allowed the FFIs to send their orders through their respective order-management systems, which would communicate those orders directly to the firm’s order-management system for routing and execution. The firm also did not apply adequate risk-based procedures or controls on the trading activity, including by failing to conduct periodic reviews of correspondent account activity.