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FINRA's Amended CAB Rule to Be Implemented Nov. 19

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The Financial Industry Regulatory Authority’s rule to amend its Capital Acquisition Broker (CAB) rule, Rule 331, will kick in on Nov. 19.

The rule was updated to reflect the Treasury Department’s Financial Crimes Enforcement Network’s adoption of a final rule on customer due diligence requirements for financial institutions.

The broker-dealer self-regulator announced in its Regulatory Notice 18-36, issued Friday, that it has filed for “immediate effectiveness amendments” to CAB Rule 331 — its anti-money laundering compliance program.

FINRA adopted in 2016 a separate set of FINRA rules for firms that meet the definition of a “capital acquisition broker” and that elect to be governed under this rule set.

“CABs are member firms that engage in a limited range of activities, essentially advising companies and private equity funds on capital raising and corporate restructuring, and acting as placement agents for sales of unregistered securities to institutional investors under limited conditions,” FINRA explained in its regulatory notice.

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


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