LPL Financial has agreed to pay $18 million to settle allegations of failing to close or restrict thousands of high-risk accounts due to inadequate anti-money-laundering (AML) procedures.
The Securities and Exchange Commission (SEC) claims that between May 2019 and December 2023, LPL’s vetting program suffered from significant failures, leading to accounts staying open even when the firm could not verify customers’ identities.
According to the SEC, thousands of accounts, including certain foreign and cannabis-related accounts, remained active despite being prohibited under LPL’s own AML policies. The agency attributes this to an inconsistent record-keeping system that fell short of meeting the firm's written customer identification program (CIP) standards—a fundamental requirement of any AML program.
“Federal law mandates that broker-dealers verify their customers’ identities and maintain ongoing due diligence to support the government in preventing money laundering,” says Stacy Bogert, associate director of the SEC’s Division of Enforcement. “When broker-dealers like LPL fail to meet these obligations, they expose securities markets to unnecessary risks.”
LPL settled the matter without admitting or denying wrongdoing, stating, “We take our regulatory obligations seriously and are pleased to resolve this matter.” The firm added, “The settlement relates to record-keeping and retention issues. We cooperated with the SEC’s investigation and have taken proactive steps to strengthen our AML policies and procedures.”
Despite the allegations, LPL’s stock price has surged nearly 50% over the past year, hitting a 52-week high of $349, up 1% on Friday.
Account Verification Challenges
When customers opened brokerage accounts with LPL, the firm collected basic identifying details and sent them to an external vendor for verification. Accounts that failed verification due to incomplete information or flagged risk factors were classified as CIP failures. However, LPL lacked a structured system to address these flagged accounts.
The SEC alleges that LPL’s registered representatives often circumvented these restrictions by directly contacting the firm’s service staff to resolve issues on behalf of account holders. During these interactions, service personnel frequently lifted account restrictions while still on the call, bypassing required CIP resolution steps.
Internal Audit Concerns
LPL’s internal audits repeatedly identified issues with its restriction-lifting processes. In a May 2019 internal email, auditors warned, “There is no effective way to document reasons for placing or modifying restrictions, and anyone with access can freely alter restrictions without a second review. This poses risks of restrictions being removed in error, enabling unauthorized account activity.”
Despite these warnings, the SEC found that LPL’s service team continued to lift restrictions without addressing CIP flags. By October 2022, LPL identified over 7,300 accounts with unresolved CIP flags that had remained open beyond the 60-day compliance window outlined in its policies.
Cannabis-Related Accounts
LPL’s AML lapses extended to screening accounts associated with cannabis-related businesses. As of February 2023, the SEC reported approximately 1,400 cannabis-related accounts holding a total of $350 million, despite LPL’s stated prohibition against engaging with entities involved in marijuana production, distribution, or related activities.
Compliance Overhaul
In early 2023, LPL hired an external consultant to assess its AML program and recommend improvements. As part of the settlement, the firm agreed to retain the consultant and implement the recommended reforms. The SEC emphasized the need for these changes to bring LPL’s AML program into compliance and address its longstanding deficiencies.
LPL’s settlement with the SEC underscores the critical importance of robust AML procedures in safeguarding the integrity of financial markets. Wealth advisors and RIAs relying on LPL’s infrastructure should take note of the firm’s commitment to enhancing its compliance framework and rebuilding trust in its operations.
