On March 28, 2023, the Financial Industry Regulatory Authority (FINRA) published Regulatory Notice 23-06 addressing the “recent trend[s] in the fraudulent transfer of customer accounts through the Automated Customer Account Transfer Service (ACATS).” ACATS is an automated transfer system developed by the National Securities Clearing Corporation (NSCC). It allows eligible participants to automatically initiate, review, and complete the transfer of customer accounts through standardized procedures. FINRA Rule 11870 (Customer Account Transfer Contracts) governs the account transfer process, establishing rules that firms must follow when a customer completes a Transfer Instruction Form (TIF).

FINRA has noticed an increase in the instances of bad actors taking advantage of the ease of use of ACATS to fraudulently transfer customer accounts. ACATS fraud often involves a bad actor opening a new brokerage account online using the stolen personal information of a legitimate customer of another firm. The bad actor then uses the ACATS system to initiate a transfer of the account from the customer’s legitimate broker to a new account controlled by the bad actor. After the transfer is complete, the funds are siphoned away from the receiving account into an external account controlled by the bad actor.

Reg. Notice 23-06 identifies the following potential indicators of ACATS fraud that have been observed through FINRA’s regulatory program:

• Repeated Rejections of TIFS (Transfer Requests) – The carrying member institution repeatedly rejects the receiving member’s account transfer request for the same customer due to incomplete or inaccurate information.

• Request for Asset Transfer Soon After New Account is Opened – A bad actor completes a transfer request for a brokerage account that has just been opened and funded.

• Changes in Customer Communication – A customer deviating from his or her normal method of communication with the member firm, e.g., a customer who communicates through by telephone now insists on communicating via e-mail.

With ACATS fraud on the rise, FINRA has urged its members to take steps to mitigate the risk of falling victim to ACATS fraud, including  timely investigating potential fraud, verifying customer information for accounts opened online, swiftly communicating account transfer confirmations to customers and escalating potentially fraudulent transfers to the firms’ respective Anti-Money Laundering (AML) programs.