Last Wednesday Andrew Ceresney, the Director of the Securities and Exchange Commission’ (“SEC”) Division of Enforcement, discussed the culture of antimoney laundering (“AML”) compliance and the integration of AML compliance into a firm’s broader compliance framework; the value of Suspicious Activity Reports (“SAR”); and a Division initiative on fostering compliance with the Bank Secrecy Act (“BSA”) and SARs rules. View the full text of Ceresney’s speech here.
Ceresney pointed out the important role which SARs filings play in the Commission’s regulatory oversight and the surprisingly low number of SARs filings made. Because of that disconnect, and the low quality of the SARs
reports received, the Enforcement Division has begun pursuing standalone BSA enforcement investigations. The initiative targets those firms who do not appear to be consistently meeting their books and records obligations under Rule 17a8 and the BSA and identifies those firms that have filed few or no SARs over extended periods of time and whose failure raises questions about their compliance with their BSA obligations. The early efforts of this initiative have resulted in dozens of examinations and investigations potentially focused on BSA violations. If and when the Commission does take enforcement action, Ceresney believes those proceedings will send a strong and clear message about the importance of BSA compliance. He notes that in the recent BSA enforcement actions against two brokerdealers, admissions that the firms had failed to satisfy their obligations under the BSA were required.
He further emphasized that one of those enforcement actions included a total of $20 million in monetary relief, the largest ever imposed against a brokerdealer for AML failures. That case also involved the Treasury Department’s Financial Crimes Enforcement Network, marking the first case in recent years in which the two agencies acted jointly. Moreover, in both of the two brokerdealer AML cases the settlement orders required substantial undertakings which included the retention of independent outside consultants to assess BSA compliance programs and identify fixes, which must then be implemented.
The SEC is not alone in its renewed focus on AML compliance. According to Reuters, New York’s Department of Financial Services is poised to begin random audits of banks’ AML systems. The state regulator may also require senior management to certify the effectiveness of their institution’s AML procedures.
And the Financial Industry Regulatory Authority (“FINRA”) included AML in its list of regulatory and examinations priorities. FINRA’s AML focus will be on Cash Management Accounts (“CMA”) and certain Delivery versus Payment/Receipt versus Payment (“DVP/RVP”) accounts. FINRA will review the adequacy of firm surveillance systems and processes to identify potentially suspicious transfers to and from CMA accounts, and to verify the business purpose of activity conducted through these accounts. FINRA will also focus on DVP/RVP accounts of foreign financial institutions. FINRA has observed an increase in microcap activity and foreign currency conversion activity in DVP/RVP accounts, which may be based in jurisdictions with weak regulatory regimes.
FINRA examiners will also focus on the adequacy of firms’ surveillance of customer trading. Firms should tailor customer trading surveillance around the AML risks inherent in their business lines, products and customer bases.