Citi fined for failure to monitor employees’ outside brokerage accounts
Citigroup Global Markets Inc has agreed to pay a fine as a part of a settlement with the Financial Industry Regulatory Authority (FINRA).
The settlement refers to alleged violations of FINRA rules that occurred during the period from at least June 2017 to February 2019. During this period, CGMI failed to establish and maintain a supervisory system, including written supervisory procedures, reasonably designed to monitor its employees’ outside brokerage accounts.
CGMI’s written supervisory procedures required employees to disclose their personal brokerage accounts to the firm. For employee accounts held in-house at the firm or with certain preferred outside brokers, employees were not required to obtain pre-approval from the firm’s Internal Compliance Risk Management group (ICRM) in order to open or maintain an account.
ICRM approval to open or maintain an account was required for all other accounts (non-preferred accounts). Once an employee disclosed an in-house or preferred account, the employee’s trade data was directly electronically fed into the firm’s Employee Due Diligence system (EmDD), which was the firm’s primary system for monitoring employee trading.
For those accounts for which the firm did not have access to an electronic feed, the firm required employees to manually upload PDF statements to EmDD on a periodic basis. CGMI also required employees to upload PDF statements (1) electronic accounts for the period after the employee joined CGMI until the electronic feed was set up, and (2) where the firm rejected an employee’s request to maintain a non-preferred account, for the period from the employee’s coverage date until the account was closed.
Thus, a significant percentage of employee outside brokerage accounts required PDF statements for at least some period. PDF statements uploaded by employees were to be reviewed by (1) ICRM and (2) the employee’s supervisor.
From at least June 2017 to February 2019, CGMI failed to have in place a supervisory system, including written procedures, reasonably designed to ensure that employees timely uploaded PDF statements and that the firm timely reviewed employees’ personal trading.
As a result of this conduct, Citi violated FINRA Rules 3110(a), 3110(b), 3110(d) and 2010.
The respondent consented to the imposition of a censure and a $350,000 fine.