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FINRA Alerts Firms to Recent Increase in ACH “Instant Funds” Abuse

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.

Regulatory Notice 21-14

©2023 Katten Muchin Rosenman LLPNational Law Review, Volume XI, Number 92

About this Author

Susan Light, Katten Law Firm, Finance Law Attorney, New York

Susan Light focuses her practice on financial services regulatory matters. She counsels broker-dealers, hedge funds, investment banks and financial services clients on enforcement issues involving the Securities and Exchange Commission (SEC), Financial Industry Regulatory Authority (FINRA), other self-regulatory organizations (SROs) and state and federal regulatory authorities. She has particular experience related to sales practice issues, financial and operational issues, anti-money laundering, crowdfunding, cybersecurity, and cryptocurrencies.

Elizabeth Organ Financial Markets and Funds Katten Muchin Rosenman New York, NY

Elizabeth Organ represents clients across the financial services industry, with a focus on regulatory compliance and advice. Liz's background positions her to provide valuable legal counsel on transactional and regulatory matters relating to commodities and derivatives, investment management, and cryptoassets and distributed ledger products.

Helping clients address complex regulatory and legal challenges

Liz assists clients with a range of financial services regulatory matters, collaborating with legal staff, business executives and regulators alike to pursue...