SEC Probing BoA About Possible Customer-Protection Violation

The Security and Exchange Commission is reviewing if Bank of America violated its customer-protection rules that were put in place to protect its clients’ accounts, The Wall Street Journal reported.

The claims that the SEC is investigating stem from reports that Bank of America may have used an unconventional strategy that misled regulators as to the lengths the financial institution was going to protect its clients. The investigation involves probing into reports that the bank put retail-brokerage funds at risk as a way to bring in more profits, according to WSJ‘s report.

“For at least three years, the bank used large, complex trades and loans to save tens of millions of dollars a year in funding costs and to free up billions of dollars in cash and securities for trading that Bank of America otherwise would have needed to keep off-limits, these people said,” the report said, citing unnamed sources.

While this strategy was said to have stopped in mid-2012 as a result of regulatory risks, the transactions that occurred in Bank of America’s Merrill Lynch unit (acquired by BoA in 2009) are the ones in question. A Bank of America spokeswoman, however, defended the bank.

“These transactions, which began at Merrill Lynch before the acquisition by Bank of America, received extensive review and approval,” a spokeswoman for BoA told WSJ. “The firm fully complied with the rules designed to safeguard client funds.”

As the report indicates, the regulation that is spurring the SEC’s probe comes from a 1972 rule that designated how investment banks and trading firms handle cash: “Investment banks and trading firms set aside enough cash and easy-to-sell securities that, in the event of failure, they can readily repay whatever they owe their customers,” WSJ details.

Sources said to be close to the matter told the WSJ that the SEC is probing into the accuracy of the bank’s prior statements filed with the federal agency.


New PYMNTS Report: Preventing Financial Crimes Playbook – July 2020 

Call it the great tug-of-war. Fraudsters are teaming up to form elaborate rings that work in sync to launch account takeovers. Chris Tremont, EVP at Radius Bank, tells PYMNTS that financial institutions (FIs) can beat such highly organized fraudsters at their own game. In the July 2020 Preventing Financial Crimes Playbook, Tremont lays out how.

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