Over the last several years, despite a decline in enforcement in certain areas in the securities industry, regulatory scrutiny of anti-money laundering (AML) programs has remained a key focus area. With the recent change in Administration, this focus on AML does not appear to be letting up, with recently-confirmed Treasury Secretary Janet Yellen highlighting it as one of her priorities. Further, FINRA has again listed AML among its top priorities in its new Risk Monitoring and Examination Activities Report.
Against this backdrop, we conducted an analysis of 23 public SEC and FINRA AML enforcement actions levied against broker-dealers from 2018 to 2020. Our analysis revealed that enforcement actions generally stem from five key themes: 1) product and customer risk; 2) transaction monitoring and surveillance; 3) staffing issues; 4) suspicious activity reporting and investigations; and 5) independent testing. Failures or weaknesses in these areas have resulted in civil penalties that can rise into the millions, particularly where the failures are deemed willful. The SEC and FINRA have also pursued individual liability, finding Compliance Officers to be personally liable for their company’s AML failures and pursuing steep fines as well as suspensions from working in the securities industry. Our analysis has also revealed increasingly more complex AML examinations conducted by both the SEC and FINRA. Recent enforcement actions issued by both regulators indicate more specialized and comprehensive reviews of firms’ transaction monitoring and surveillance systems, testing and scrutinizing the quality of data, risk mapping, alert generation and system clearing.
This Financial crimes observer analyzes the themes from recent enforcement actions to provide broker-dealers with a roadmap on how to avoid similar pitfalls within their AML compliance programs.