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SEC issues risk alert on brokers’ compliance with anti-money laundering

On Behalf of | Aug 16, 2023 | Regulatory Investigations

The Securities and Exchange has issued a risk alert regarding the compliance of broker-dealers with anti-money laundering (AML) programs, Wealth Management reports.

The SEC’s Division of Examinations conducts examinations of firms over their AML and countering the financing of terrorism requirements.

In the risk alert, the examinations unit found that broker-dealers weren’t putting enough resources or staffing into their anti-money-laundering programs. The SEC said this issue can be exacerbated in the current environment of new and increasing sanctions imposed by the Office of Foreign Assets Control against some Russian nationals following the invasion of Ukraine.

The examinations staff also found that some firms were inconsistent in their implementation of policies and procedures designed to combat financial crimes.

“The staff observed that the effectiveness of policies, procedures, and internal controls was reduced when firms did not implement those measures consistently,” the risk alert said. “With the goal of assisting registrants in reviewing and enhancing their AML programs, EXAMS reminds registrations of their obligations to comply with all applicable AML and financial sanctions laws and regulations.”

The SEC noted that broker-dealers are required to implement and maintain a written AML program, approved in writing by senior management, that includes a minimum of four policies, procedures, and internal controls reasonably designed to achieve compliance with the Bank Secrecy Act. An AML compliance officer must be designated to oversee the program and have the firm’s AML program independently tested.

Regarding the independent testing requirement, the staff observed, among other deficiencies, broker-dealers that did not conduct testing in a timely manner or could not demonstrate that they had conducted such testing. Also observed were independent tests that appeared ineffective because “they did not cover aspects of the firm’s business or AML program; the personnel conducting the testing was not independent or did not have the appropriate level of knowledge of the requirements of the BSA; or the testing was conducted under requirements not applicable to the securities industry.”

The SEC has penalized firms that fall short in their AML efforts and last month the commission fined Merrill Lynch $6 million for failing to file so-called suspicious-activity reports, which are intended to alert authorities to possible instances of money laundering. Merrill Lynch also agreed to pay another $6 million fine to FINRA.

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