SEC Alerts Broker-Dealers on AML Compliance Deficiencies

The SEC alerted broker-dealers about anti-money laundering compliance ("AML") deficiencies found in recent examinations.

In a Risk Alert, the Division of Examinations highlighted the following:

• Independent Testing. The Division observed broker-dealers failing to (i) conduct independent testing in a timely manner, (ii) satisfy their firm AML programs, (iii) ensure that testing was conducted by personnel that were independent or had appropriate knowledge of BSA requirements, and (iv) address issues revealed by the testing in a timely manner. The Division also found instances of broker-dealers not updating their training materials in accordance with updates to regulations, or not being able to confirm that all relevant staff attended ongoing training.
• Customer Identification Program. The Division observed deficiencies under the Customer Identification Program rule. The rule requires broker-dealers to establish and maintain a written CIP appropriate to a firm’s size and business and to obtain required identifying information for each customer. The Division found CIPs that prevented broker-dealers from knowing the "true identity of their customers." The Division found failures to (i) perform CIP procedures regarding investors in a private placement, (ii) collect and verify identifying information of individuals such as dates of birth, addresses, and identification numbers, (iii) use exception reports to alert the broker-dealer when a customer’s identity is not properly verified, and (iv) review and document third-party vendor alerts designed to identify missing or inconsistent information.
• Customer Due Diligence ("CDD") and Beneficial Ownership. The Division observed that broker-dealers failed to update their AML programs regarding certain CDD requirements, including (i) procedures that allowed an entity to be listed as a beneficial owner without obtaining the necessary information on the beneficial owner, (ii) opening new accounts for legal entity customers without identifying the beneficial owners or failing to obtain documentation to verify their identities and (iii) failing to comply with internal procedures regarding obtaining information on underlying parties acting through omnibus accounts.