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FINRA Files to Update CAB Rule

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The Financial Industry Regulatory Authority filed another proposed rule change with the Securities and Exchange Commission to amend its Capital Acquisition Broker (CAB) rule, Rule 331, to reflect the Treasury Department’s Financial Crimes Enforcement Network’s (FinCEN) adoption of a final rule on customer due diligence requirements for financial institutions.

This is the second rule amendment FINRA has issued to conform with FinCEN’s rule, which became effective on May 14.

The broker-dealer self-regulator amended Rule 3310, its Anti-Money Laundering Compliance Program rule, in May to reflect FinCEN’s adoption of its final CDD rule.

Regulatory Notice 18-19 alerted broker-dealers to ensure that their AML programs are updated, and applied to FINRA members that have not elected CAB status.

The new rule filing adds the CDD requirements to the CAB anti-money laundering rule.

Since CABs are subject to a separate rule set, FINRA needed to make an additional rule filing to conform the CAB anti-money laundering rule to FinCEN’s CDD requirements.

FINRA’s proposed amendments would require CABs’ anti-money laundering compliance programs to include risk-based procedures for conducting ongoing customer due diligence.

The ongoing customer due diligence element for AML programs includes understanding the nature and purpose of customer relationships for the purpose of developing a customer risk profile; conducting ongoing monitoring to identify and report suspicious transactions; and, on a risk basis, maintaining and updating customer information, according to FINRA.

Treasury’s FinCEN, which is responsible for administering the Bank Secrecy Act and its implementing regulations, issued the CDD Rule on May 11, 2016, to “clarify and strengthen customer due diligence for covered financial institutions, including broker-dealers.”