Broker-Dealer Settles FINRA Charges for AML Failures
Commentary by Jeff Ziesman
A broker-dealer settled FINRA charges for failing to (i) implement procedures to verify the identities of beneficial owners of its customers at the time of new client engagements and (ii) conduct independent testing of its AML compliance program.
According to the AWC, the broker-dealer failed to obtain certifications confirming the accuracy of beneficial ownership information and did not adequately record or document the methods it used to verify this information. FINRA found that the firm's AML program lacked policies designed to identify and verify the beneficial ownership of its legal entity customers, as required under the Bank Secrecy Act. FINRA also found that the broker-dealer failed to conduct the mandatory independent testing of its AML program, despite being required to do so annually.
FINRA determined that broker-dealer violated FINRA Rule 3310 ("Anti-Money Laundering Compliance Program") and Rule 2010 ("Standards of Commercial Honor and Principles of Trade").
To settle the charges, the broker-dealer agreed to (i) a censure and (ii) pay a $30,000 fine. FINRA acknowledged that the firm implemented new supervisory procedures and an onboarding checklist to address the violations.
Commentary
The AML compliance program failings in this case are significant. Over a four-year period, the firm did not fully "know" its legal entity customers, and in particular the beneficial owners of these legal entities. Without fully knowing these legal entity customers, the firm could not properly assess whether transactions conducted, and the financial activities engaged in, by these customers were consistent with their risk profiles. This could allow these customers' activities to escape appropriate scrutiny and allow actions to go largely unchecked. In the end, the firm was fined $30,000—while this amount is not significant compared to other FINRA AML cases, this firm is small (with only eight registered representatives).