Is an AML Crackdown Coming for RIAs?

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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.

Said Marzouk: “There have been recent AML enforcement actions, including some with very large fines. This is a continued focus for broker-dealer regulators, such as FINRA and SEC. Given the increased regulatory attention (and fines) in this space, broker-dealers seem to be beefing up AML staffing to ensure adequate responses to red flags, sufficient SAR filings and more.”

Hill Watch

The Senate will vote the week of April 12 to confirm Gary Gensler as chairman of the Securities and Exchange Commission. “Gensler’s going to be part of an activist regulatory agenda generally in the financial service sector,” Christopher Gilkerson, Charles Schwab’s senior vice president and general counsel, said on a recent call with reporters. On the commission, he “has two fellow Democrats,” Acting SEC Chair Allison Herren Lee and Caroline Crenshaw, “to form a 3-2 majority.”

At Press Time

Both the SEC and FINRA issued further alerts on special purpose acquisition companies, or SPACs. In the first nine weeks of 2021, SPACs raised over $70 billion, compared with $80 billion in all of 2020, according to FINRA’s alert, which highlights the risks associated with SPACs.

Meanwhile, the SEC’s Division of Corporation Finance issued a statement that addresses certain accounting, financial reporting and governance issues that should be carefully considered before a private operating company undertakes a business combination with a SPAC.

More Regulatory Buzz

Biden Signs Bill Extending PPP Loan Application Deadline 

SEC Charges Blockchain Firm With Unregistered Digital Asset Offerings 

IRS Extends IRA Contribution Deadline

(Pictured at top: Ben Marzouk of Eversheds Sutherland)