Bank of America Subsidiary Fined $3 Million Over Surveillance System Failures

A subsidiary of Bank of America (BofA) has agreed to pay $3 million and implement remedial measures to address allegations that its surveillance system failed to detect manipulative trading, the Financial Industry Regulatory Authority (FINRA) announced.

BofA Securities (BofAS) will pay $669,000 of the fine to FINRA, with the remaining amount distributed to exchanges, including Choe BYX and Nasdaq, according to a disciplinary action released by the self-regulatory agency on Wednesday.

The issues span nearly a decade. Between 2015 and 2024, the surveillance system used by Bank of America Merrill Lynch (BAML)—and from 2019 by BofAS—was deemed too limited to detect manipulative practices such as wash trading and pre-arranged trading, FINRA stated. BAML had outsourced its surveillance to third parties, but the system employed relied on parameters that were too narrow to effectively identify manipulation, FINRA alleged. Moreover, BAML was unable to justify its choice of surveillance system, according to the agency.

FINRA further alleged that BAML failed to test whether the system’s parameters were reasonable and did not have written supervisory procedures in place to ensure compliance.

Between July 2017 and October 2018, Merrill’s system did not monitor trading in over-the-counter (OTC) securities and warrants because the firm had not purchased the necessary OTC data feed from its third-party vendor, FINRA reported. Additionally, from October 2016 to August 2020, BAML failed to review alerts generated by three of its surveillance systems. Despite “numerous red flags,” BAML was unaware of the oversight until a regulatory inquiry brought it to the firm’s attention, FINRA added.

As part of the compliance measures, BofAS must, within six months, implement written supervisory procedures to ensure adherence to FINRA regulations. Senior management will also be required to certify in writing to FINRA that the identified issues have been addressed.

In response, a Merrill spokesperson emphasized in an emailed statement that there was no harm to clients. “We have been enhancing our surveillance program and will continue to implement improvements to ensure we meet regulatory requirements,” the spokesperson stated.

By fLEXI tEAM