U.S. Sens. Ron Wyden (D-OR) and Elizabeth Warren (D-MA) called for the Financial Industry Regulatory Authority (FINRA) to strengthen protections as a way to prevent Automated Customer Account Transfer Service (ACATS) brokerage fraud.
The lawmakers said ACATS is way for brokerage firms to seamlessly transfer stocks, bonds and cash from one firm to another. Managed by the National Securities Clearing Corporation, it is designed to keep brokerages from slowing transfers, but its rapid process gives fraudsters an opportunity to exploit the system’s weak security measures, officials said. The senators are calling for FINRA to require brokerage firms to notify account holders of ACATS requests. Currently, FINRA recommends the requests, but does not require them.
The lawmakers are also demanding that FINRA require brokerages to protect customer accounts from hackers with phishing-resistant multi-factor authentication technology, such as passkeys as cyber defenses.
“It is unacceptable that major brokerage firms are putting customers’ life savings at risk of being ripped off by criminals because of inadequate account protections,” the senators said in their letter to Robert W. Cook, the President and CEO of FINRA. “FINRA must step in to protect consumers.”
Under current regulations, brokerage firms have one business day to validate or object to a transfer request and three business days to complete asset transfers. FINRA does not require the brokerages to notify customers before they transfer assets. Most firms rely on bare-bones electronic verification, the senators said, and do not verify the transfer with the outgoing account holder. Some do not even notify customers about the transfer of their assets, the senators said. As a result, the process has been a target of fraudsters who can open accounts in victims’ names and use the ACATS system to drain their investments before they are aware of what is happening.