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Compliance Concepts

FINRA Offers Guidance on AML Programs

May 7, 2019

by Howard Haykin



FINRA issued Regulatory Notice 19-18 to provide guidance to member firms regarding suspicious activity monitoring and their reporting obligations under FINRA Rule 3310, Anti-Money Laundering Compliance Program.


FINRA Rule 3310 requires each member firm to develop and implement a written anti-money laundering (AML) program reasonably designed to achieve and monitor the firm’s compliance with the requirements of the Bank Secrecy Act (BSA), and the implementing regulations promulgated thereunder by the Department of the Treasury (Treasury).
FINRA Rule 3310(a) requires firms to “[e]stablish and implement policies and procedures that can be reasonably expected to detect and cause the reporting of transactions required under [the BSA] and the implementing regulation thereunder.”



FINANCIAL INSTITUTIONS MUST FILE SUSPICIOUS ACTIVITY REPORTS (SARS).   Under Treasury’s SAR rule a broker-dealer (“B/D”) must report a transaction to the Financial Crimes Enforcement Network (FinCEN) if: (i) it’s conducted or attempted by, at or through a B/D, (ii) it involves or aggregates funds or other assets of at least $5,000, and (iii) the B/D knows, suspects or has reason to suspect that the transaction (or a pattern of transactions of which the transaction is a part):


  • involves funds derived from illegal activity or is intended or conducted in order to hide or disguise funds or assets derived from illegal activity (including, without limitation, the ownership, nature, source, location or control of such funds or assets) as part of a plan to violate or evade any federal law or regulation or to avoid any transaction reporting requirement under federal law or regulation;


  • is designed, whether through structuring or other means, to evade any regulations promulgated under the BSA;


  • has no business or apparent lawful purpose or is not the sort in which the particular customer would normally be expected to engage, and the broker-dealer knows of no reasonable explanation for the transaction after examining the available facts, including the background and possible purpose of the transaction; or,


  • involves use of the broker-dealer to facilitate criminal activity.



IT’S ABOUT MONEY LAUNDERING RED FLAGS.    FINRA first published a list of “money laundering red flags” in Special NASD Notice to Members 02-21. Since then, additional examples of money laundering red flags have arisen for firms to consider - which FINRA lists out in Monday’s RegNote 19-18, and which firms should consider incorporating into their AML programs.


Keep in mind these examples of red flags don’t constitute an exhaustive list and do not guarantee compliance with AML program requirements or provide a safe harbor from regulatory responsibility. For example, firms should also be aware of emerging areas of risk, such as risks associated with activity in digital assets.


The red flags, which appear in RegNote 19-18 and are far too numerous for me to list here, are categorized in the following groupings:


  1.    Potential Red Flags in Customer Due Diligence and Interactions with Customers.
  2.    Potential Red Flags in Deposits of Securities.
  3.    Potential Red Flags in Securities Trading.
  4.    Potential Red Flags in Money Movements.
  5.    Potential Red Flags in Insurance Products.
  6.    Other Potential Red Flags.



[For further details and FINRA advisories, click on FINRA Regulatory Notice 19-18.]