On March 25, the Financial Industry Regulatory Authority (FINRA) issued a notice warning member firms that there appears to be an increase in new customers opening online brokerage accounts and engaging in Automated Clearing House (ACH) “instant funds” abuse to effect securities trading. Some firms provide individuals opening a brokerage account online with instant access to funds, allowing those customers to trade in their online accounts as soon as they enable ACH transactions, without having to wait for the payment to settle. FINRA has observed that the increase in misuse of instant funds is correlated with the recent market volatility driven by social media interest in certain securities.
In light of the increase in instant funds abuse, FINRA has urged firms to evaluate and mitigate the potential financial risk they face. FINRA provides suggestions for how firms could mitigate their financial risk, including, (1) adjusting the amount of available “instant funds;” (2) delaying the ability to place orders with unsettled funds; or (3) enhancing firms account validation processes. In addition, FINRA reminds firms that have experienced instant funds abuse that this activity may trigger a Suspicious Activity Report (SAR) filing obligation, or require the firm to report the transaction to the Financial Crimes Enforcement Network using SARs.