The Financial Crimes Enforcement Network (FinCEN) has issued interpretive guidance clarifying the due diligence obligations of executing dealers under the correspondent account rule with respect to prime brokerage clients in over-the-counter foreign exchange and derivatives markets (OTC Markets). The rule requires a covered financial institution to establish a due diligence program that is designed to detect and report known or suspected money laundering activity in such correspondent accounts.

Noting that both the prime brokerage client and the executing dealer enter into opposing transactions with the prime broker, rather than effecting transactions directly with one another in the OTC Markets, FinCEN has concluded that the correspondent account rule does not impose a due diligence obligation upon the executing dealer with respect to prime brokerage clients. FinCEN cautioned, however, that executing brokers that are subject to anti-money laundering obligations are nonetheless expected to establish and implement risk-based policies, procedures, and controls for assessing the money laundering risk posed by their operations, including the execution of over-the-counter foreign exchange and derivatives transactions; for monitoring and mitigating that risk; and for detecting and reporting suspicious activity.