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Rules & Regulations

FINRA’s AML Compliance Rule Revised for Customer Due Diligence

May 3, 2018

FINRA announced that it has amended FINRA Rule 3310 (Anti-Money Laundering Compliance Program) to reflect the Financial Crimes Enforcement Network’s (FinCEN) adoption of a final rule on Customer Due Diligence Requirements for Financial Institutions (CDD Rule). The rule changes take effect on Friday, 5/11/18.


Two years ago, FinCEN issued the CDD Rule to clarify and strengthen customer due diligence for covered financial institutions, including broker-dealers. In its CDD Rule, FinCEN identifies 4 components of customer due diligence:

  1. customer identification and verification;
  2. beneficial ownership identification and verification;
  3. understanding the nature and purpose of customer relationships; and,
  4. ongoing monitoring for reporting suspicious transactions and, on a risk basis, maintaining and updating customer information.


As the first component is already an AML program requirement, the CDD Rule focuses on the other 3 components. Specifically, the CDD Rule focuses particularly on the 2nd component by adding a new requirement that covered financial institutions identify and verify the identity of the beneficial owners of all legal entity customers at the time a new account is opened, subject to certain exclusions and exemptions.


The CDD Rule also addresses the 3rd and 4th components by amending the existing AML program rules for covered financial institutions to explicitly require these components to be included in AML programs as a new “fifth pillar.”


With its changes, FINRA Rule 3310(f) ... requires member firms’ AML programs to, at a minimum, include appropriate risk-based procedures for conducting ongoing customer due diligence, to include, but not be limited to: (i) understanding the nature and purpose of customer relationships for the purpose of developing a customer risk profile; and, (ii) conducting ongoing monitoring to identify and report suspicious transactions and, on a risk basis, to maintain and update customer information.