Automated System Monitoring Failures Lead to $1 Million FINRA Fine

FINRA’s recent settlement with member Velocity Clearing, LLC spotlights supervisory priorities, serving as another reminder that even amid shifting SEC priorities and resource allocation, FINRA continues to impose significant fines for supervisory deficiencies.

Key Takeaways:

• Drafting WSPs is not enough: Well-defined written supervisory procedures, calibrated surveillance thresholds, and effective system monitoring are essential components to any reasonably designed supervisory program.
• Trained teams matter: Compliance staff must be skilled and sufficiently resourced to handle the volume and complexity of a member’s business.
• Automation isn’t assurance: Trade monitoring systems fail when alerts are generated and closed without review and follow up.

Overview

On September 30, 2025, FINRA issued a Letter of Acceptance, Waiver, and Consent (“AWC”) to Velocity Clearing, LLC (“Velocity”), a broker-dealer, finding violations of Rules 3110 (adequate supervisory systems) and 2010 (high standards of commercial honor) from December 2019 to the present. FINRA determined that Velocity failed to establish, maintain, and enforce supervisory systems and written supervisory procedures reasonably designed to detect manipulative trading by customers. The settlement imposes a censure, a $1,000,000 fine (with $81,056 payable to FINRA and the remainder to a set of U.S. equities exchanges), and a requirement to engage an independent consultant to improve Velocity’s policies and procedures.  

Velocity’s Compliance Program

FINRA found Velocity’s supervisory procedures were inadequate. Velocity’s written supervisory procedures required the firm to monitor for fraudulent devices or schemes but did not specify what factors reviewers should consider, whether to assess patterns over time, how to document dispositions, or when or how to escalate alerts for a principal’s second‑level review. As a result of these failures, FINRA found the supervisory program was not “reasonably designed” to achieve compliance with applicable securities laws and regulations, and with applicable FINRA rules under Rule 3110.

Principally, FINRA determined that Velocity failed to adequately configure its automated compliance systems. From December 2019 through December 2022, the firm failed to enable its vendor system’s prearranged‑trading surveillance—even after receiving peer inquiries concerning more than 40 customers. FINRA alleged that when that module eventually was turned on, it promptly generated more than 10,000 alerts, which the firm never reviewed.

At other times, Velocity’s system generated nearly 150,000 alerts for potentially manipulative activity (including cross trades, spoofing, layering, and wash trading) by its customers. FINRA found the firm closed more than 147,000 of those alerts (98%) without any investigation, with approximately one‑third closed on the same day the alert was generated. FINRA observed that the firm’s staff sometimes closed hundreds or thousands of alerts in a single day without appearing to conduct any review or escalation, and there was no supervisory review of the alerts or the process for clearing the alerts after closure. Some alerts were never addressed.

FINRA noted that inadequate staffing and training compounded the problem. For part of the period, a single associated person—with other duties—handled alert review; later, the firm added compliance staff, but FINRA found staffing was still inadequate and noted no written guidance or training was provided. The combination of volume, staffing, and training gaps prevented reasonable reviews and follow‑up. FINRA found that these failures violated Rule 3110, which states that “[f]inal responsibility for proper supervision shall rest with the member . . . ” and requires that supervisory system provide, at a minimum, in part reasonable efforts to determine that all supervisory personnel are qualified, either by virtue of experience or training, to carry out their assigned responsibilities.

Velocity’s New Compliance System Did Not Improve Supervision

In July 2023, Velocity replaced its surveillance platform. The new system produced approximately 15.2 million alerts (including for layering, spoofing, and wash trading). The firm closed nearly all without investigation, and as of early 2025, over 5.2 million alerts remained unreviewed. FINRA concluded that the supervisory failings persisted despite the platform change, viewing Velocity as a recidivist.

Bottom Line

FINRA expects surveillance systems to operate effectively, with proper configuration, adequate staffing, and active oversight. Failures such as disabled functions, mass alert closures, or persistent alert backlogs may evidence violations of Rules 3110 and 2010. Firms that lack tailored written supervisory procedures, alert escalation processes, or adequate alert review capacity risk substantial penalties and the imposition of independent consultants in FINRA enforcement actions.