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Critical AML Tips for a Successful Compliance Program
It’s critical to ensure your firm’s AML Program is in optimal shape, and taking proactive steps now will help your firm stay compliant with regulatory requirements, manage risks effectively, and avoid potential penalties. Prioritizing AML program updates, internal audits, employee training, and ensuring proper oversight will position your firm for continued success in the coming year.
When assessing your existing Broker-Dealer (BD) AML Program, FINRA Rule 3310 is a great place to start. This rule sets the foundational requirements for a broker-dealer’s AML program, ensuring that it is designed to comply with the Bank Secrecy Act (BSA) and other relevant regulations.
Each member firm’s anti-money laundering program must be approved, in writing, by a member of senior management and the programs required by this Rule should, at a minimum, meet the below criteria:
- Policies, Procedures & Internal Controls:
- Establish and implement policies and procedures that can be reasonably expected to detect and cause the reporting of transactions required under 31 U.S.C. 5318(g) and the implementing regulations thereunder;
- Establish and implement policies, procedures, and internal controls reasonably designed to achieve compliance with the Bank Secrecy Act and the implementing regulations thereunder;
- Independent Testing: Provide for annual (on a calendar-year basis) independent testing for compliance to be conducted by member personnel or by a qualified outside party, unless the member does not execute transactions for customers or otherwise hold customer accounts or act as an introducing broker with respect to customer accounts (e.g., engages solely in proprietary trading or conducts business only with other broker-dealers), in which case such “independent testing” is required every two years (on a calendar-year basis);
- Appoint an AMLCO: Designate and identify to FINRA (by name, title, mailing address, e-mail address, telephone number, and facsimile number) an appointed Anti-Money Laundering Compliance Officer responsible for implementing and monitoring the day-to-day operations and internal controls of the program and provide prompt notification to FINRA regarding any change in such designation(s);
- AML Training:
- Provide ongoing training for appropriate personnel; and
- Include appropriate risk-based procedures for conducting ongoing customer due diligence, to include, but not be limited to:
- Understanding the nature and purpose of customer relationships for the purpose of developing a customer risk profile; and
- Conducting ongoing monitoring to identify and report suspicious transactions and, on a risk basis, to maintain and update customer information.
Keys Segments of the AML Process:
- Customer Due Diligence (CDD), Know Your Client (KYC) and Onboarding: As a key component of confirming your client’s identity, firms should drill down into the beneficial ownership of any associated entities (including companies, trusts, and special purpose vehicles) and screen for politically exposed persons (PEPs), sanctions, and adverse media as part of their client onboarding process.
- Information to obtain:
- Beneficial ownership (state-owned companies [SOC] and ultimate beneficial ownership [UBO]
- Politically exposed persons (PEP)
- Sanctions (including entities owned or controlled by sanctioned subjects)
- Adverse media coverage (including special interest and reputationally exposed people and entities)
- Information to obtain:
- Enhanced Due Diligence (EDD): This is an essential component of an AML Program, particularly for both individual and corporate clients with high-risk factors. EDD goes beyond standard due diligence by requiring more comprehensive checks and analysis to mitigate the heightened risk of money laundering, terrorist financing, and other financial crimes. The key elements of EDD for both individual and corporate clients include:
- source of funds and wealth checks;
- independent identity checks;
- verification of corporate appointments and directorships;
- company background and activities;
- officers, senior management and shareholders information;
- specialist lists and sanctions screenings; and
- ongoing monitoring.
- Ongoing Monitoring/Supervision: Customer profiles change over time. As part of a thorough risk assessment, firms must conduct ongoing monitoring of their business relationships to ensure risk profiles haven’t changed in a way that would expose the firm to non-compliance and reputational damage.
- Firms should look to automate this process to screen all of their customers regularly for changes in politically exposed person (PEP) status, sanctions and adverse media. Firms also should carry out event-driven investigative research.
- Sanctions Screening: This is a critical part of a firm’s anti-financial crime framework and helps protect businesses from illegally engaging with any sanctioned companies, entities or individuals.
- All businesses are obliged to comply with sanctions screening requirements and penalties for breaches can be significant. In addition to customer screening, firms are encouraged to complete transaction screening to identify any payments involving targeted individuals or entities.
- International Trading Compliance: International trade is a major channel for inadvertently funding the activities of terrorists, providing capital and restricted goods to sanctioned parties, and laundering the funds of drug traffickers and other criminals. Firms should have processes/tools in place with access to data and technology tools that provide screening, monitoring, and lookup capabilities across key areas of trade-related risk, including dual-use goods, sanctioned counterparties, locations, and vessels.
Ensuring your firm’s AML Program meets or exceeds the above requirements is one of the main keys to successfully maintaining a stellar Compliance Program. If your firm needs assistance with establishing and maintaining its AML Program, FiSolve can help.
Article written by Kimberly Johnson, Senior Vice President, Compliance
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