Firm Settles FINRA Charges for Failure to Conduct Independent AML Testing
Commentary by Jeff Ziesman
A firm settled FINRA charges for failing to conduct independent testing of its anti-money laundering ("AML") compliance program.
According to the AWC, FINRA found that from at least 2018 through the present, the firm failed to conduct independent testing of its AML program, and from February 2022 through the present, the firm failed to have written procedures requiring independent AML testing.
As a result, FINRA found that the firm violated FINRA Rules 3310(c) ("Anti-Money Laundering Compliance Program") and 2010 ("Standards of Commercial Honor and Principles of Trade").
To settle the charges, the firm agreed to (i) a censure, (ii) pay a $15,000 fine and (iii) an undertaking requiring it to conduct an independent AML test and revise its written AML program to mandate independent testing on an annual basis.
Commentary
One of the five pillars of a reasonably designed anti-money laundering ("AML") program is the independent testing function. That is precisely why that requirement is enshrined in FINRA Rule 3310(c)—each FINRA Member is required, on an annual (calendar-year basis), to have independent testing done by either a third party or an employee of the Firm who is not otherwise associated with AML functions. Such a process can identify (among other things) gaps or weaknesses in the overall AML Program.
In this case, the firm failed to conduct any independent testing of its AML program, in any calendar year, for at least a six-year period. Moreover, the firm's AML program did not include any procedures providing for independent testing from February 2022 through the present. As a result of these failures, this smaller firm (which has six registered representatives and one branch) was fined $15,000.