Wells Fargo Advisors will pay $7 million in a settlement with the Securities and Exchange Commission over charges that the broker-dealer failed to file certain suspicious activity reports in a timely manner, a compliance issue initially discovered by the Financial Industry Regulatory Authority, an SEC filing said.

According to the filing, the compliance issue stemmed from Wells Fargo’s implementation of a new version of its internal anti-money laundering system (AML) and then the failure to sufficiently test and monitor it. Following the computer program update, the firm-wide system no longer correctly cross-referenced country codes used by the National Geospatial-Intelligence Agency with those of the International Organization for Standardization.

“Due to the deficient implementation and failure to test and conduct sufficient monitoring of the new AML system between January and September 2019, the system did not generate timely alerts for approximately 1,708 brokerage transactions,” the filing said. “Wells Fargo Advisors consequently failed to timely surveil or investigate certain suspicious activity related to foreign wire transfers in its customers’ accounts.”

In addition, between about April 2017 and October 2021, Wells Fargo Advisors also failed to file suspicious activity reports (SARs) in certain situations, such as on days when there was a bank holiday without a corresponding brokerage holiday, the SEC said.

Wells Fargo, headquartered in St. Louis, could not be reached by press time.

The discovery of the failed alert system came in September 2019, when Finra asked for information on wire transfers greater than $5,000 either to or from countries considered a high or moderate risk for money laundering, terrorist activity or other illegal actions involving money, the filing said. The request was routine. The countries included Costa Rica, Turkey, Honduras, the British Virgin Islands, Antigua, Cayman Islands, Ukraine and Guernsey.

Finra identified transactions that met the anti-money-laundering system’s requirements but failed to trigger the expected system alerts. It was then that Wells Fargo realized the new version of the system was not cross-referencing country codes when monitoring transactions, and the company started working on a fix, the filing said.

However, in 2019, the system should have generated alerts for 1,708 brokerage transactions that involved wire transfers. Upon further analysis, 25 of those transactions, ranging from $29,980 to $2.5 million, should have generated a suspicious activity report.

Another 658 alerts failed to be generated between 2017 and 2021 on days when there was a bank holiday but no brokerage holiday. Among those alerts, there were nine wire transfers that should have generated a suspicious activity report. In this case, the transfer amounts ranged from $10,480 to $6.2 million.

In determining the fine, the SEC said it took into account Wells Fargo’s cooperation and remediation efforts.