While the Financial Industry Regulatory Authority has always required broker-dealers to have strong anti-money laundering policies, the nature of money laundering schemes is changing, the self-regulator’s enforcement chief said Tuesday, so it’s imperative that BDs maintain compliance programs that respond to these challenges and adequately address risks to their firms.
Brad Bennett, FINRA’s executive vice president of enforcement, said during the Securities Industry and Financial Markets Association’s anti-money laundering and financial crimes conference that when considering whether to levy an enforcement action against BDs’ chief compliance and AML officers, FINRA considers the following five factors:
- extent the individual was involved in the wrongdoing;
- whether the individual has taken corrective measures;
- the extent of underlying conduct and degree of investor harm; and
- willful blindness or intentional participation in the violations.
Having policies to detect AML risk has been included in FINRA’s annual regulatory priorities letter over the past 11 years, Bennett said. He noted the importance of tailoring AML policies to firm’s risk parameters and business model and highlighted two trends FINRA is noticing on the enforcement side.
First, he said, centers on the adequacy of firms’ systems for monitoring for suspicious activity.
“I can’t stress enough the importance of ensuring that the systems your firm uses to monitor customer accounts and activity are properly tested and calibrated, and are continuously modified to tailor them to the risks inherent in your business models,” Bennett said.
He told BDs to think about the various types of high-risk activity flowing through their firms — “are those transactions — including all relevant steps — being adequately captured in your systems? Are the thresholds in those systems appropriate?”
BDs’ systems, he continued, “should reflect a careful consideration of your risks. And, if you’re delegating the monitoring of suspicious trading to someone outside of AML, which I know is a common industry practice, be sure it’s an appropriate delegation — and that you have an open line of communication back to the AML function.”
Bennett also noted the increasing suspicious trading that’s occurring in microcap securities.