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SEC Finds Deficiencies in Broker-Dealers' Anti-Money Laundering Policies

Posted on August 8th, 2023 at 1:11 PM
SEC Finds Deficiencies in Broker-Dealers' Anti-Money Laundering Policies

From the desk of Jim Eccleston at ÍøÆØ³Ô¹Ï 

The Securities and Exchange Commission (SEC) has issued an alert to broker-dealers regarding deficiencies found in their examinations related to crucial anti-money laundering (AML) requirements.

The Risk Alert reveals that some broker-dealers did not allocate sufficient resources, including staffing, to AML compliance considering the volume and risks of their business. The SEC cautioned that this issue could be exacerbated, especially with the increasing sanctions imposed by the Office of Foreign Assets Control (OFAC) against individuals and entities, mainly when the same firm personnel handles both AML and sanctions compliance functions.

The Risk Alert by the SEC also outlined observations about other significant AML requirements, such as independent testing of firms' AML programs, personnel training, and identifying and verifying customers and their beneficial owners. Additionally, the SEC's exam division noted that the effectiveness of the policies, procedures, and internal controls was reduced when firms did not implement those measures consistently.

According to ThinkAdvisor, during compliance exams for federal securities laws and the Bank Secrecy Act, the SEC examiners identified certain weaknesses in OFAC compliance programs. These weaknesses included entities not adopting or implementing reasonable, risk-based internal controls for:

1. Following up on potential matches with the sanctions lists and documenting the
outcomes.
2. Performing periodic or event-based screening of existing clients based on changes in
ownership or the sanctions lists.
3. Conducting OFAC searches promptly or failing to document completed searches.

The SEC also observed instances where broker-dealers' Customer Identification Programs (CIPs) did not appear to be adequately designed to ensure they knew the true identity of customers. Furthermore, the SEC staff noticed broker-dealers that had not updated their AML programs, new account forms, and procedures to account for the adoption of the Customer Due Diligence (CDD) Rule.

 

ÍøÆØ³Ô¹Ï LLC represents investors and financial advisors nationwide in securities, employment, transition, regulatory, and disciplinary matters.

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