Financial Industry Regulatory Authority (FINRA) has fined Citigroup Global Markets $1.25m for deficiencies in its background checks.
The regulator claims the bank failed to conduct timely or adequate background checks on around 10,400 non-registered associated persons, spanning a seven-year period.
Federal securities laws require broker-dealers to fingerprint certain associated persons working in a non-registered capacity before working at the firm. The test results would provide information such as a criminal background, and firms use the results during background checks to assess the ability of a client and whether there are any statutory disqualifications.
There is a similar requirement with federal banking laws regarding banking employees, but with a more limited listed of disqualifying events.
Between January 2010 and May 2017, FINRA claims Citigroup failed sufficient background checks for around 10,400 of associated persons. Of these at least 520 were not fingerprinted until they began work, preventing the firm assessing whether the persons had any statutory disqualifications. Additionally, it couldn’t determine whether a further 520 had been fingerprinted prior to work.
While others had been fingerprinted, FINRA states that Citigroup had failed to screen them as required by federal securities laws and instead only used screening events specified in federal banking laws.
Following an investigation, FINRA identified three individuals working at Citigroup who were subject to statutory disqualification due to criminal convictions.
FINRA executive vice president of department of enforcement Susan Schroeder said, “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.”
Citigroup neither admitted nor denied the charges but consented to the entry of FINRA’s findings.
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