RIA Compliance Blog
Highlighting the importance of timely filing of Suspicious Activity Reports (“SARs”), the Securities and Exchange Commission (“SEC”) entered a settled order against UBS Financial Services Inc. (“UBSFS”), a registered broker-dealer and investment adviser incorporated in Delaware and with its principal place of business in Weehawken, New Jersey. The SEC found that UBSFS failed to timely file certain SARs, in violation of Section 17(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 17a-8 thereunder. As part of the settlement, UBSFS agreed to cease and desist from committing or causing further violations of the relevant provisions, was censured, and agreed to pay a $20 million civil monetary penalty to the SEC within 30 days of entry of the order.
The Bank Secrecy Act (“BSA”) generally requires the filing of a SAR with the Financial Crimes Enforcement Network (“FinCEN”) for a transaction or pattern of transactions, conducted or attempted by, at, or through the broker-dealer involving or aggregating funds or other assets of at least $5,000 that the broker-dealer knows, suspects, or has reason to suspect meets specified criteria for suspicious activity. Under 31 C.F.R. § 1023.320, a SAR generally must be filed within 30 calendar days after the broker-dealer’s initial detection of facts that may constitute a basis for filing the SAR.
The 2026 enforcement action against UBSFS follows a 2018 SEC settled order addressing deficiencies in UBSFS’s AML program. In that earlier proceeding, the SEC found that UBSFS violated Section 17(a) of the Exchange Act and Rule 17a-8 thereunder because its AML policies and procedures were not reasonably designed to adequately monitor, detect, and report suspicious activity. Among other deficiencies, UBSFS used a legacy automated AML transaction-monitoring system that it had determined was inadequate to monitor certain FX wire transactions. UBSFS subsequently represented that it would implement a fully automated surveillance system covering all customer transactions, known as the “New Automated AML Transaction Monitoring System” (the “New System”), by mid-2019. However, UBSFS did not complete the transition to the New System until February 2021.
The SEC’s 2026 settled order found that UBSFS continued to experience deficiencies in the timely filing of SARs during and after its transition to the New System. From at least 2019 through January 2021, UBSFS failed to timely file SARs related to certain FX wire transactions. After implementing the New System in February 2021, UBSFS continued to experience untimely SAR filings due to deficiencies carried forward from the 2018 proceeding, as well as new data-related deficiencies affecting the New System.
The SEC identified several system-related issues that contributed to these deficiencies. These included:
- Incomplete data feeds: certain FX wire transactions were not transmitted to the New System because UBSFS relied on incomplete data files and changes in transaction-labeling conventions.
- Data-processing errors: the New System failed to properly process certain transactions because of issues with matching transactions and counterparty data, merging weekend files, and formatting currency codes and wire reference numbers.
- No exception reporting: the New System lacked an exception or “repair” queue to alert UBSFS when transaction data failed to transmit successfully.
To address the identified flaws and deficiencies, UBSFS began a lookback review in August 2022 to identify instances in which it failed to timely file SARs. The review identified suspicious transactions totaling approximately $250 million in value for which SARs had not been timely filed. UBSFS began filing the resulting “lookback” SARs in October 2023, which the SEC determined were also untimely.
Furthermore, UBSFS failed to conduct adequate due diligence to maintain updated customer profiles for certain customers, contrary to its AML policies. These deficiencies impaired UBSFS’s ability to identify transactions that were inconsistent with customers’ known profiles and contributed to delays in filing SARs associated with those transactions.
For example, the SEC identified a customer with a nexus to Russia in 2022, during a period of heightened geopolitical tensions between Russia and Ukraine. UBSFS’s failure to conduct the required due diligence and adequately account for the customer’s historical nexus to a sanctioned oligarch contributed to its failure to identify and timely report potentially suspicious activity. The customer was subsequently indicted in connection with alleged violations of U.S. sanctions.
While timely SAR filing is an important component of an effective AML compliance program, the SEC’s action also underscores the importance of effective transaction monitoring and escalation processes. Firms should not rely solely on automated monitoring systems to identify potentially suspicious activity. Rather, firms should maintain adequate supervisory and compliance controls to identify system deficiencies, investigate potential issues, and ensure timely remediation.
Parker MacIntyre provides legal and compliance services to investment advisers, broker-dealers, registered representatives, hedge funds, and issuers of securities, among others. Our regulatory practice group assists financial service providers with complex issues that arise in the course of their business, including compliance with federal and state laws and rules. Please visit our website for more information.