The US Securities and Exchange Commission Identifies AML Failures of US Brokerage Firms

The Securities and Exchange Commission (SEC) has reported that compliance reviews of US brokerage firms continue to expose deficiencies in anti-money laundering (AML) efforts.

According to the SEC’s compliance exam division, firms that do not dedicate adequate resources to their anti-money laundering programs continue to be reported by regulators in light of the volume and risks involved in their activities. 

The SEC emphasised that the resource issue “can be exacerbated in the current environment of new and increasing sanctions, particularly where the same firm personnel performs both AML and sanctions compliance functions.”

The regulator highlighted areas for improvement in firms’ compliance with the requirement for independent testing of AML controls, and the reviews revealed that firms’ AML efforts are undermined when controls are not implemented consistently.

Additionally, the regulators identified shortcomings in the broker’s sanctions compliance programs, as well as their identification verification processes and compliance with important customer due diligence and beneficial ownership requirements.

The SEC has filed several enforcement actions against broker-dealers over the years. FINRA (broker-dealers) and the Financial Crimes Enforcement Network (FinCEN) enforced the Bank Secrecy Act on firms registered with the SEC as brokers or dealers. Furthermore, FinCEN required that brokers develop written programs for customer identification, conduct due diligence on their customers, and monitor their accounts for suspicious activity. Brokers are required to file SARs when suspicious activities are identified.

Since 2013, when the SEC’s enforcement division formed a broker-dealer task force, it has focused on these provisions, “Section 17 of the SEC Act and Rule 17a-8,” as a priority for holding brokers accountable for anti-money laundering (AML) violations.

Over the years, the SEC has demonstrated its intense interest and seriousness in achieving this objective through its approach to examinations, investigations, and, most recently, litigation. Following the findings of the SEC, firms have been instructed to review and strengthen their anti-money laundering policies, procedures, and internal controls. However, the SEC’s continued pursuit of these violations, including a $23 million penalty in one instance, reinforces the need for brokers and dealers to maintain compliance with AML requirements.

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