The U.S. Financial Industry Regulatory Authority (FINRA) has imposed a $1 million fine against E*Trade Securities, LLC and E*Trade Clearing, LLC, collectively, for failing to establish and implement anti-money laundering policies and procedures that could reasonably be expected to detect and cause the reporting of suspicious securities transactions.

FINRA announced the fines on Friday.

The U.S. regulator requires brokerage firms to establish and implement anti-money laundering procedures that address a number of areas, including monitoring the trading in customer accounts as well as the flow of money into and out of these accounts. It has also instructed each broker/dealer that its anti-money laundering program must be tailored to its business, considering factors such as its size, location, business activities, the types of accounts it maintains and the types of transactions in which its customers engage. Online firms specifically have been instructed to “consider conducting computerized surveillance of account activity to detect suspicious transactions and activity.”

However, the regulator found that between Jan.1, 2003 and May 31, 2007, E*Trade did not have an adequate anti-money laundering program based upon its business model. It noted that the firm relied on its analysts and other employees to manually monitor for and detect suspicious trading activity without providing them with sufficient automated tools. FINRA determined that this approach “was unreasonable” given the firm’s business model.

In concluding this settlement, E*Trade neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.

IE