On October 8, the Financial Industry Regulatory Authority (FINRA) issued Regulatory Notice 21-36 (FINRA Encourages Firms to Consider How to Incorporate the Government-wide Anti-Money Laundering and Countering the Financing of Terrorism Priorities Into Their AML Programs). The Regulatory Notice informs member firms of the AML/CFT Priorities and the Statement. The Regulatory Notice also encourages member firms to consider how to incorporate the AML/CFT Priorities into their risk-based anti-money laundering (AML) compliance programs. On June 30, 2021, the Financial Crimes Enforcement Network (FinCEN) issued the first government-wide priorities for anti-money laundering and countering the financing of terrorism policy (the “AML/CFT Priorities”), which was mandated by the Anti-Money Laundering Act of 2020 (AML Act). FinCEN also issued a statement to provide covered non-bank financial institutions (NBFIs), including broker-dealers, with guidance on how to approach the AML/CFT Priorities.
FinCEN issued the AML/CFT Priorities following consultation with other relevant Department of the Treasury offices, as well as Federal and State regulators, law enforcement, and national security agencies. The AML/CFT Priorities identify and describe the most significant AML/CFT threats currently facing the United States. In no particular order, these include: corruption, cybercrime, domestic and international terrorist financing, fraud, transnational criminal organizations, drug trafficking organizations, human trafficking and human smuggling, and proliferation financing. FinCEN also issued two statements (the “AML/CFT Priorities Statements”) to provide guidance to covered institutions on how to approach the AML/CFT Priorities. The AML/CFT Priorities were issued pursuant to the AML Act.
The AML Act which became law on January 1, 2021, and, among other amendments to the Bank Secrecy Act (BSA), requires FinCEN to issue the AML/CFT Priorities and update them at least once every four years. The AML/CFT Priorities are intended to assist covered financial institutions, including broker-dealers, in their efforts to meet their obligations under laws and regulations designed to combat money laundering and counter terrorist financing. FinCEN has clarified that the publication of the AML/CFT Priorities does not create an immediate change in the BSA requirements or supervisory expectations for covered NBFIs, including broker-dealers. FinCEN has noted further that covered NBFIs are not required to incorporate the AML/CFT Priorities into their risk-based AML compliance programs until the effective date of final regulations promulgated by it. The BSA, as amended by the AML Act, requires that FinCEN promulgate any appropriate regulations regarding the AML/CFT Priorities within 180 days of their establishment.
FinCEN has stated that the final regulations will specify how financial institutions (including broker-dealers) should incorporate the AML/CFT Priorities into their risk-based AML compliance programs, and that not every priority will be relevant to every covered institution. FinCEN has also stated that covered NBFIs (including broker-dealers) may nevertheless wish to start considering how they will incorporate the AML/CFT Priorities into their risk-based AML compliance programs, such as by assessing the potential risks associated with the products and services they offer, the customers they serve, and the geographic areas in which they operate.
The Regulatory Notice also reminds member firms that FINRA Rule 3310 requires every member firm to develop and implement a written AML compliance program reasonably designed to achieve and monitor for compliance with the requirements of the BSA and the implementing regulations promulgated thereunder by the Department of the Treasury. Although the issuance of the AML/CFT Priorities does not trigger an immediate change in the BSA requirements or supervisory expectations for member firms, FINRA encourages member firms to begin to evaluate how they will incorporate and document the AML/CFT Priorities, as appropriate, into their risk-based AML compliance programs. Member firms that are beginning to evaluate how they will do so may wish to begin considering potential updates to the red flags that they have incorporated into their risk-based AML compliance programs in light of the risks presented by factors such as their business activities, size, the geographic locations in which they operate, the types of accounts they maintain, and the types of transactions in which they and their customers engage.
Firms may also wish to begin considering any potential technological changes that may be appropriate in order to incorporate the AML/CFT Priorities into their risk-based AML compliance programs, including changes to the technology that they use to monitor and investigate suspicious activity. Upon the effective date of final regulations addressing the AML/CFT Priorities, member firms should be in a position to review and incorporate, as appropriate, the AML/CFT Priorities into their risk-based AML compliance programs. FinCEN has acknowledged the need for revised regulations and timely guidance to assist covered NFBIs, including broker-dealers, in complying with the BSA and expressed its commitment to working with federal agencies to develop and publish such guidance.
Practus AML Services
Practus provides broker-dealers and other financial institutions comprehensive and diverse services relating to all aspects of AML rules and regulations. The firm offers the following services:
- Perform independent testing/auditing of AML compliance programs
- Develop and design AML compliance programs
- Perform Gap Analysis of AML compliance programs
- Conduct AML reviews and investigations
- Develop and present AML training
Who should you talk to if you have further questions?
If you would like further information concerning the matters discussed in this Legal Insights, please contact Robert Moreiro.