On March 29, 2021, the Securities and Exchange Commission (“SEC”) began to make good on its promise to make AML a key examination priority in 2021 by issuing a risk alert authored by the Division of Examinations (“EXAMS”) detailing the results of a review of broker-dealers’ compliance with anti-money laundering (“AML”) requirements (the “Alert”).
The Alert details the obligations of broker-dealers to comply with AML programs and SAR monitoring and reporting requirements pursuant to the “AML Program Rule,” 31 C.F.R. § 1023.210, and the “SAR Rule,” 31 C.F.R. § 1023.320, as well as similar obligations under Rule 17a-8 of the Securities Exchange Act of 1934 (“Exchange Act”), which incorporates the Bank Secrecy Act (“BSA”) reporting and record-keeping obligations applicable to broker-dealers. The Alert further issues findings that indicate certain firms are experiencing shortcomings when it comes to establishing and implementing sufficient suspicious activity monitoring and reporting policies and procedures, which is leading to inadequate SAR reporting in several respects.
Perhaps not coincidentally, EXAMS issued the Alert shortly after the U.S. Court of Appeals for the Second Circuit ruled in December 2020 in SEC vs. Alpine Securities Corp. that the SEC has the authority to bring an enforcement action against broker-dealers under Section 17(a) and Rule 17a-8 of the Exchange Act on the basis of alleged BSA failures, including failures to comply with the SAR Rule. Whether the Alert is a true “heads up” or a forewarning of enforcement actions to come, firms are encouraged not to replicate the specific deficiencies identified in the Alert.
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