Key Insights
- Interactive Brokers Australia fined AU$832,500 for negligence by ASIC.
- The penalty relates to the firm’s failure to identify and address suspicious trading activities by a client.
- Earlier regulatory actions against Interactive Brokers include stop orders due to deficiencies in product disclosures.
Interactive Brokers Australia Pty Ltd, a prominent player in the financial markets, has been hit with a substantial monetary penalty by the Australian financial markets regulator.
According to the announcement, the fine, amounting to AU$832,500 (approximately US$538,000), was imposed due to what has been described as negligence on the part of the brokerage firm in failing to detect suspicious trading activities conducted by one of its clients.
Interactive Brokers allowed suspicious trading
The Australian Securities & Investments Commission’s (ASIC) Market Disciplinary Panel (MDP) issued an infringement notice, which Interactive Brokers Australia Pty Ltd promptly complied with. The panel’s verdict was damning, labeling the actions of the brokerage firm as ‘reckless.’ Notably, these actions included permitting suspicious trading to continue even after concerns were raised by the regulator.
One of the key criticisms leveled against Interactive Brokers was its failure to maintain the requisite organizational and technical resources to effectively address and mitigate these concerns.
The penalty, in this instance, was imposed in response to the suspicious trading activities of a single client. This ‘experienced trader’ had placed orders with the apparent intent of inflating the closing price of a stock listed on the ASX (Australian Securities Exchange).
The sequence of events began with ASIC contacting Interactive Brokers on October 14, 2021, after the trading activities of this particular client triggered regulatory alerts. Alarmingly, Interactive Brokers’ own surveillance system had detected 44 ‘marking the close’ alerts between February 10 and October 13, 2021, attributable to the same client.
Failure to act and reporting delay
ASIC’s critique of Interactive Brokers centered on several key issues. Firstly, the broker was found to have been too slow in responding to and closing these alerts.
Secondly, meaningful review notes were lacking in the handling of these alerts. Most significantly, there was an absence of proactive measures to address the suspicious trading activities.
Remarkably, Interactive Brokers did not file a suspicious activity report with ASIC until November 5, 2021.
ASIC’s statement on the matter was unequivocal:
The MDP considered that these circumstances demonstrated that Interactive Brokers did not have sufficient staff with the necessary skills, knowledge, or experience to properly assess the alerts or those staff were not adequately supervised to ensure they were doing their job. The MDP noted that analysis of high-risk alerts must begin on the relevant trade date, and review of all alerts should be concluded within a fortnight.
This development comes on the heels of earlier regulatory actions taken against the Australian arm of Interactive Brokers. Earlier this year, ASIC issued two stop orders that temporarily barred the firm from offering its Stock Yield Enhancement Program (SYEP) Derivatives to retail investors. These measures were taken as ASIC identified deficiencies in the product’s target market determination (TMD) and the broker’s product disclosure statement (PDS).
Interactive Brokers will now need to address these regulatory concerns and work towards enhancing its compliance and risk management practices to rebuild trust with both investors and regulatory authorities.