Welcome back to Human Capital. I’m Melanie Waddell, ThinkAdvisor’s Washington bureau chief.
This week the Securities and Exchange Commission’s exam division issued a risk alert detailing broker-dealers’ anti-money laundering compliance failures, specifically those related to filing suspicious activity reports. Ben Marzouk, an attorney at Eversheds Sutherland, tells Human Capital that recent chatter forewarns that likely incoming SEC Chairman Gary Gensler may revive a dormant AML policy plan for registered investment advisors.
Investment advisors “are still not technically subject to AML rules issued by FinCEN,” the Treasury Financial Crimes Enforcement Network, Marzouk said. However, a Gensler-led SEC may “pick up the 2016 investment advisor AML proposals which have been sitting dormant at SEC for the last four years.”
AML offenses were the top fine-getter for the Financial Industry Regulatory Authority in 2020. FINRA reported 14 AML cases last year, resulting in $16.2 million in fines.
Thanks for tuning in again as we spotlight the people taking the pulse of the financial regulatory landscape.
Don’t forget to listen in on the latest Human Capital podcast with Susan Schroeder, the former head of the Financial Industry Regulatory Authority’s enforcement division who’s now a partner at WilmerHale and vice chair of its Securities & Financial Services Department.
What SEC Exams Found
Broker-dealers are required to file a SAR with FinCEN to report any suspicious transaction relevant to a possible violation of law or regulation. “Generally, a broker-dealer must file a SAR for any transaction involving funds or other assets of at least $5,000 that are conducted or attempted by, at, or through the broker-dealer,” the SEC said.
- The securities regulator found broker-dealers that did not establish reasonably designed policies and procedures and internal controls necessary to adequately identify and report suspicious activity as required under the Bank Secrecy Act.
- Some firms that had reasonably designed written policies and procedures did not implement their procedures adequately and did not conduct adequate due diligence on or report suspicious activity that, per their own procedures, appeared to trigger a SAR filing requirement, according to the SEC.
- Weak policies, procedures and internal controls, or the failure to implement existing policies and procedures, ultimately resulted in firms not conducting or documenting adequate due diligence in response to known indicators of suspicious activity especially with respect to activity in low-priced securities, which are particularly susceptible to market manipulation, the SEC said.
- Broker-dealers, in some cases, the SEC found, did not include details known to the firm of individual customer trades or issuers that were suspicious or, in other cases, did not make use of specific structured data fields on the SAR.
The SEC said mutual funds also may benefit from the exam findings.