AML under the spotlight at FXDD

New York-based retail forex broker FX Direct Dealer (FXDD) faces $250,000 in penalties for failing to effectively monitor and investigate breaches in anti-money laundering (AML) rules, signalling the risks of fraudulent activities at retail brokers.

In a complaint filed by local industry regulator the National Futures Association (NFA) on October 23, FXDD and its chief compliance officer James Green were alleged to have breached rules regarding AML. The breach as it pertains to FXDD includes a failure to provide annual training for employees in areas susceptible to money laundering and critically, said the NFA, failing to detect or adequately investigate suspicious activity in several of its customers' accounts.

This is the second complaint about AML failings filed by the NFA against FXDD in recent months. The first was filed in June alongside allegations of using asymmetrical price slippage settings that favoured FXDD over customers, and failing to supervise the trade integrity of the firm's electronic trading systems – which FXDD has denied.

According to the latest complaint, the NFA found that compliance failures highlighted in the June complaint had not been resolved when re-investigated. As part of its investigation, the NFA reviewed 25 account-opening documents and activity statements covering the period between January to June, and August.

"In reviewing the account-opening documents and activity statements for these statements for these accounts, NFA noted suspicious activity in several of these accounts which FXDD had failed to identify, investigate or report. Much of the suspicious activity that NFA noted involved activity which was identified as a "red flag" in both NFA's Interpretive Notice and FXDD's own AML program, including extensive and unexplained wire activity (often with little or no trading in the accounts) and deposits to accounts that exceeded the customer's reported income, net worth, and/or risk capital," the notice read.

While the findings come as banking regulators increase oversight of AML practices at leading banks, a spokesperson at the NFA in Chicago said the drive was unrelated. "We always focus on AML cases. Usually if they [the broker] have AML deficiencies when we start auditing, we just warn them and say ‘you need to fix this', but when we go back and they still haven't done so, we need to take action against it," he said.

The spokesperson said neither case has yet been resolved, with FXDD due to submit a response by the end of November. FXDD did not respond to enquiries.

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