Supervisors and operational personnel should pay particular attention to the activities of brokers, traders, customers, and producing branch office mangers in an effort to identify potential red flags. Being able to identify key red flags is critical to the operation of a complaint broker dealer.
Applying "Operational Red Flag" to Securities Exams:
A key to passing many FINRA exams will be your ability to identify potential red flags and the potential violations that can occur as a result of the activity. Some key red flags to have mastered and to be on the look out for on you exam are:
A producing branch office manager who seems to be submitting a large number of transactions to be canceled from one account and rebilled to another may be showing favoritism to his clients over the clients of the other brokers in the office.
A registered representative engaging in this practice may also be showing preferential treatment to one customer over another or may be trying to park stock.
Customers who frequently fail to pay or require extensions to pay for securities may be engaging in free ridding.
A customer who seems to be submitting a large number of requests to journal assets to seemingly unrelated accounts or who engages in a pattern of trading that seems to make no economic sense may be engaging in money laundering. Even a single request to journal money to an unrelated account should be a cause for concern
A trader or registered representative who seems to be moving a large number of transactions into the firm’s error account may be parking stock or trying to shift losses for unprofitable trades to the firm.
A trader or other persons in stated sensitive job functions who does not want to take their mandatory vacation could indicate that the person is hiding losses from the firm
A history of 1035 exchanges for annuity contracts may constitute churning.
