Citigroup Global Markets will pay a $1.25 million fine for allegedly failing to conduct timely or adequate background checks on thousands of non-registered associated persons.
The Financial Industry Regulatory Authority (FINRA) brought the enforcement, which Citigroup Global Markets settled without admitting or denying wrongdoing.
Susan Schroeder, executive vice president of FINRA’s enforcement department, said in a statement: ‘FINRA member firms must live up to their responsibility as a gatekeeper protecting investors from bad actors. It is important that firms appropriately screen all employees for past criminal or regulatory events that can disqualify individuals from associating with member firms, even in a non-registered capacity.’
In a related filing, FINRA notes that federal securities laws require its member firms to fingerprint most associated persons before or when they become associated with the firm.
Firms use these fingerprint results as part of their background checks to determine, among other things, whether a prospective associated person has previously engaged in misconduct - certain criminal and regulatory events - that subjects him or her to a ‘statutory disqualification.’ FINRA members also must also obtain other background information to determine whether a prospective associated person is subject to certain serious, but non-criminal, findings or sanctions imposed by financial regulators that could mean they are subject to a statutory disqualification.
According to FINRA, Citigroup Global Markets from January 2010 through May 2017 failed to conduct timely or adequate background checks on roughly 10,400 of its non-registered associated persons. The firm failed to fingerprint at least 520 non-registered associated persons until after they began to work for Citigroup Global Markets, the self-regulatory organization (SRO) alleges.
In addition, FINRA says the firm was unable to determine whether it fingerprinted at least another 520 non-registered associated persons on a timely basis because it failed to locate necessary documentation. For the remaining individuals the firm did fingerprint on a timely basis, Citigroup Global Markets conducted screening under Section 19 of the Federal Deposit Insurance Act, FINRA says. But it adds that the firm failed to screen any of the 10,400 associated persons for certain types of felony convictions.
In addition, the SRO alleges that at least three individuals who were subject to a statutory disqualification were allowed to associate with the firm during the period at issue, and that the firm was unable to determine whether another roughly 140 associated persons were subject to a statutory disqualification because when it reviewed them their associations had ended or they were on leave.
Citigroup Global Markets’ alleged failure to fingerprint and/or properly screen the individuals at issue arose from its failure to maintain a reasonable supervisory system or procedures to identify and properly screen all individuals who became associated with the firm in a non-registered capacity, according to FINRA.
In determining the appropriate sanction, the SRO says it considered factors such as that Citigroup Global Markets:
- Launched, before any intervention by a regulator, an extensive review of the firm's systems, practices and procedures regarding fingerprinting and screening associated persons
- Shared the results of that review with FINRA
- Promptly started correcting supervisory deficiencies identified by the internal review
- Provided substantial assistance to FINRA during its investigation.
In addition to paying the fine, the firm agrees to review its systems and procedures regarding the identification, fingerprinting and screening of non-registered associated persons and to certify that it has completed a retrospective review to identify non-registered associated persons who were not previously fingerprinted and/or screened and that they now have been.
A spokesperson for Citi said the firm is pleased to have the matter resolved.
Ben Maiden
Ben Maiden is the editor-at-large of Governance Intelligence, an IR Media publication, having joined the company in December 2016. He is based in New York. Ben was previously managing editor of Compliance Reporter, covering regulatory and compliance...
