News & Insights

Finra Issues Guidance On Financial Fraud Amidst Covid 19 Pandemic

FINRA recently issued Regulatory Notice 20-13 “FINRA Reminds Firms to Beware of Fraud During the Coronavirus (COVID-19) Pandemic.” The Notice was released in response to the COVID-19 pandemic, which has had a strong impact on the U.S. economy and markets.

The Notice addresses measures firms should take to resolve the increased risks and challenges presented during the COVID-19 pandemic, including related vulnerabilities related to the remote working environment. The Notice outlines four common scams that may increase during the COVID-19 pandemic – (1) fraudulent account openings and money transfers; (2) firm imposter scams; (3) IT Help Desk scams; and (4) business email compromise schemes. 

As it relates to Fraudulent Account Openings and Money Transfer, the Notice warns, “Firms should be aware that fraudsters are targeting firms offering online account opening and, perhaps especially, firms that recently started offering such services. These fraudsters may be taking advantage of the pandemic to use stolen or synthetic identities to establish accounts to divert congressional stimulus funds, unemployment payments or to engage in automated clearing house (ACH) fraud.” To alleviate these risks, FINRA recommends bank account verifications, as well as restrictions on fund transfers.

In the Notice, FINRA also addressed the fact that fraudsters “may also take advantage of remote working environments to pose, via email or text message, as firm leadership to request one or more fund transfers, for example, related to accounts payable invoices.” FINRA has observed firms addressing such risks by alerting staff to actively monitor for potential red flags and to confirm requests over the phone prior to acting on any requests.

FINRA urges firms to protect customers and other firms by immediately reporting scams and any other potential fraud. Further, in addition to considering the practices noted in Regulatory Notice 20-13, we encourage our clients to assess their compliance programs and have policies and procedures in place to prevent such financial fraud.