Canaccord Settles Over $100 Million for Violating U.S. Banking Laws
Canaccord Genuity Group Inc., an independent Canadian investment bank, has agreed to pay more than $100 million in penalties for violating U.S. banking laws. This settlement, disclosed on Friday, marks the largest fine imposed on a broker-dealer for breaches of the U.S. Bank Secrecy Act. The agreement follows nearly three years of investigations led by three U.S. financial regulators.
Details of the Settlement
The Financial Crimes Enforcement Network (FinCEN), part of the U.S. Treasury Department, reported that Canaccord failed to report multiple securities fraud schemes. These schemes had detrimental economic impacts on unsuspecting investors. The U.S. Securities and Exchange Commission (SEC) indicated serious flaws in Canaccord’s anti-money-laundering (AML) surveillance program. Specifically, the company relied on poorly designed exception reports and did not appropriately review flagged suspicious activities.
The total fine imposed amounts to USD 80 million, translating to approximately CAD 109.4 million. Should Canaccord adhere to the terms of the settlement, part of the penalty may be deferred. This could potentially reduce the overall financial burden to about USD 75 million, or CAD 102.6 million.
Investigation Findings
From February 2019 to March 2022, Canaccord failed to submit at least 160 suspicious activity reports. The Financial Industry Regulatory Authority (FINRA), which was also involved in the investigation, noted deficiencies in Canaccord’s AML procedures as early as 2013. By late 2021, only four Canaccord employees were responsible for reviewing numerous reports, which created a backlog.
- Reports were inadequately reviewed, leading to potential oversight of illicit activities.
- Some reports went unreviewed for extended periods, ranging from months to four years.
- The deficiencies affected various trading lines, including market-making activities.
Changes Implemented by Canaccord
After the investigation came to light, Canaccord has committed to a comprehensive overhaul of its compliance framework. The changes include hiring additional supervisory and compliance staff, implementing new surveillance protocols, and engaging third-party consultants to assess its AML practices. Michael Auerbach, Canaccord’s lead independent director, emphasized the company’s dedication to aligning with regulatory expectations.
Financial Impact
Last November, Canaccord anticipated a significant penalty connected to its wholesale market-making operations and set aside USD 75 million in preparation. Despite the sizable settlement, the company stated that this financial impact is not expected to materially affect its ongoing financial position. In fact, Canaccord reported a net income of USD 80.5 million before taxes for its most recent quarter, a noticeable increase compared to the previous year.
