Finra has fined Citigroup Global Markets Inc. (CGMI) $1.25 million for failing to conduct adequate background checks—a violation that led to the hirnig of workers with criminal background, the regulator announced today.
The failures happned on about 10,400 "non-registered associated persons"—those who will not be registered with Finra—between 2010 and 2017, resulting in CGMI employing at least three individuals with criminal convictions, Finra said. The firm was unable to determine if another 140 unscreened employees who had already left the firm should have been subject to statutory disqualification from employment, the self-regulatory organization added.
"Finra member firms must live up to their responsibility as a gatekeeper protecting investors from bad actors,” Susan Schroeder, executive vice president of Finra's Department of Enforcement, said in a prepared statement.
Firms are required by federal securities law to fingerprint certain employees—most notably associated persons who aren’t going to be registered with a regulator.
“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,” Schroeder said.
The firm also failed to fingerprint at least 520 of the 10,400 non-registered associated persons until after they began their association with CGMI, thus preventing the firm from determining whether any individuals were subject to statutory disqualification, Finra said.
In addition, the firm was unable to determine whether it timely fingerprinted at least an additional 520 non-registered persons, Finra said.
While CGMI fingerprinted other non-registered associated persons, it failed to screen them as required by federal securities laws, instead limiting its screening to what was required by federal banking laws, which are more limited, Finra said.
“The fingerprint results provide information about a prospective associated person's criminal background, and firms use the results as part of their background check to determine, among other things, whether a prospective associated person has previously engaged in misconduct that subjects the individual to a statutory disqualification,” Finra said.
Finra stated the follwing statutory disqualifications would prevent a firm from hiring an employee: