Both Investors and Firms alike should be on the lookout for ACAT Fraud
In a recent Regulatory Notice, accessible here, FINRA alerted member firms to a rising trend in customer assets being pilfered through the utilization of fraudulent Automated Customer Account Transfer forms (“ACATs”). Awareness is the first step in preventing new types of fraud from threatening a broker’s customers, and both broker and customer do well in understanding the issue and the steps to combat bad actors and fraudulent practices.
What does ACAT Fraud look like?
ACAT fraud is a byproduct of identity theft. When a customer’s identity is stolen, the bad actor can open an investment account at a new firm in the customer’s name online. Shortly thereafter, the bad actor will initiate a transfer of the customer’s assets via a fraudulent ACAT to the new account. The theft can be effectuated in a number of ways, including a simple transfer of assets from the customer’s existing account into the new, fraudulently created account or by liquidating the positions in the existing account which are then transferred out. Once this process is completed, the bad actor can freely access the customer’s assets.
What Obligations do Broker-Dealers have in preventing ACATS Fraud?
FINRA emphasizes to member firms that a number of regulatory obligations exist in connection with the use of ACATS. Such obligations include FINRA Rule 2090 (the “Know Your Customer” rule), comprehensive requirements for establishing customer brokerage accounts, the establishment of policies and procedures that are designed to detect and report suspicious activity, due diligence in operating in each customer’s best interest, among others. FINRA reminds firms of their various obligations, including the filing of Suspicious Activity Reports where required and encourages the reporting of any potential fraud to a variety of entities.
What Can Investors Do?
FINRA suggests that customers should stay informed and updated on their investment accounts and any assets maintained therein, by among other things, staying informed as to the account balance and note any unapproved changes in the accounts.