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FINRA Reminds BDs of Their Anti-Money Laundering Duties

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The Financial Industry Regulatory Authority is reminding broker-dealers of their obligations under Rule 3310, the Anti-Money Laundering Compliance Program, regarding suspicious activity monitoring and reporting obligations.

In Regulatory Notice 19-18, FINRA provides examples of money laundering red flags and broker-dealers’ obligations under Rule 3310 to develop and implement a written anti-money laundering (AML) program reasonably designed to achieve and monitor the firm’s compliance with the requirements of the Bank Secrecy Act, and the implementing regulations promulgated thereunder by the Treasury Department’s Financial Crimes Enforcement Network, or FinCEN.

The BSA authorizes Treasury to require that financial institutions file suspicious activity reports, or SARs.

The Notice, FINRA states, is intended to assist broker-dealers in complying with their existing obligations under BSA/AML requirements “and does not create any new requirements or expectations.”

Under Treasury’s SAR rule, a broker-dealer must report a transaction to FinCEN if it is conducted or attempted by, at or through a broker-dealer, it involves or aggregates funds or other assets of at least $5,000, and the broker-dealer knows, suspects or has reason to suspect that the transaction (or a pattern of transactions of which the transaction is a part):

  • involves funds derived from illegal activity or is intended or conducted in order to hide or disguise funds or assets derived from illegal activity (including, without limitation, the ownership, nature, source, location or control of such funds or assets) as part of a plan to violate or evade any federal law or regulation or to avoid any transaction reporting requirement under federal law or regulation;
  • is designed, whether through structuring or other means, to evade any regulations promulgated under the BSA;
  • has no business or apparent lawful purpose or is not the sort in which the particular customer would normally be expected to engage, and the broker-dealer knows of no reasonable explanation for the transaction after examining the available facts, including the background and possible purpose of the transaction; or
  • involves use of the broker-dealer to facilitate criminal activity.

FINRA stated that operational risks such as customer due diligence and SARs reviews would be part of its 2019 exam priorities.

FINRA said that it would assess firms’ compliance with FinCEN’s Customer Due Diligence (CDD) rule, which became effective on May 11, 2018.

The CDD rule requires that firms identify beneficial owners of legal entity customers, understand the nature and purpose of customer accounts, conduct ongoing monitoring of customer accounts to identify and report suspicious transactions and, on a risk basis, update customer information.

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