FINRA continues push for transparency with annual independent AML review

With the SEC and FINRA cracking down on several broker-dealers for alleged compliance violations, anti-money laundering is under the microscope. These actions highlight the annual independent Anti-Money Laundering review, mandated by FINRA Rule 3310, as a critical requirement for broker-dealers and financial institutions.

Understanding FINRA Rule 3310

The Anti-Money Laundering Compliance Program required by Rule 3310, outlines the framework within which broker-dealers must establish and maintain their AML programs. These programs are specifically designed to ensure compliance with the Bank Secrecy Act (BSA) and related Treasury regulations.

According to FINRA Rule 3310, an integral component of an effective AML program is the annual independent testing for compliance. This mandatory annual requirement serves as a safeguard against financial crimes and ensures broker-dealers continuously monitor and enhance their AML practices.

Key aspects of the review

Independent testing: The independent testing must be conducted by an individual or a qualified external party with a clear understanding of the BSA and its regulations. Crucially, this assigned professional must remain independent from the AML functions they are evaluating, eliminating any potential conflicts of interest.

Selecting an independent tester: When selecting an independent tester, broker-dealers must consider several critical factors:

  • Industry-specific experience: Verify that the chosen provider has experience working with broker-dealers sharing similar business models.
  • Capabilities and capacity: Assess whether the provider possesses the requisite expertise, resources, and regulatory compliance experience.
  • Professional qualifications: Consider the background, qualifications and credentials of the professionals involved in the review.

Frequency of testing: Broker-dealers are typically required to conduct the independent testing annually, following the calendar year. However, exceptions exist, such as when a broker-dealer does not engage in transactions for customers or maintain customer accounts. In such cases, the review is mandated every two years.

Scope of testing: The scope of the independent AML review should encompass various facets, including customer identification, due diligence and enhanced due diligence. It should also assess whether the AML compliance program includes adequate training elements aligned with regulatory requirements. Documenting the review’s scope and results is vital for future reference and regulatory reporting.

Compliance with FINRA Rule 3310 and the annual independent AML review is an imperative for broker-dealers and financial institutions. This regulatory requirement goes beyond mere adherence; it strengthens the overall effectiveness of AML programs and guards against potential financial crimes.

How we can help

As industry professionals dedicated to AML compliance, we encourage broker-dealers to prioritize these requirements. Collaborating with qualified independent testers is not just a regulatory necessity but a proactive step towards ensuring the integrity of your AML programs.
We can help you identify and address any gaps, deficiencies or weaknesses to ensure your procedures, systems and tools are serving you the right way and keep you compliant.