• Services
  • Attorneys
  • Media & Insights
  • Online Payment
Results may vary depending on your particular facts and legal circumstances. No aspect of this advertisement has been approved by the Supreme Court of New Jersey. A description of the selection methodology can be found here.
  • Services
  • Attorneys
  • Media & Insights
  • About Us
  • Delivering Value
  • Diversity & Inclusion
  • Meritas
  • Contact Us
  • Online Payment
    A
    Alternative Dispute ResolutionAntitrust & Trade RegulationAppellate Practice
    B
    Banking & Financial ServicesBankruptcy, Creditors’ Rights, and Financial RestructuringBeer LawBusiness Law
    C
    Cannabis LawConstruction LawCooperative and Condominium Law (Co-op & Condo)Criminal Defense
    E
    Economic Development LawElder Care & Special Needs LawElectronic Discovery ("E-Discovery")Environmental LawERISA & Employee BenefitsEstate Planning and Administration & Wealth PreservationExecutive Compensation and Employment Strategies
    F
    Food, Beverage & HospitalityFranchise Law
    H
    Health Care & Life SciencesHealth Care ProvidersHigher EducationHospitals and Health Networks
    I
    ImmigrationInsurance CoverageIntellectual PropertyIntellectual Property Litigation, Arbitration, and Dispute ResolutionIntellectual Property Portfolio Strategy, Management & LicensingInternational BusinessInternet Law
    L
    Labor & EmploymentLiquor Law, Licensing, Manufacturing, and DistributionLitigation
    M
    Media Law & Creative Economy PracticeMergers & AcquisitionsMunicipal Law
    N
    Non-Profit Law
    P
    Patent Preparation and ProsecutionPharmaceutical / Medical Devices / Pharma ServicesProducts and Consumer Liability DefenseProfessional LiabilityPublic Utilities
    R
    Real Estate, Finance, and Land Use
    S
    SecuritiesSolar Energy
    T
    TaxationTelecommunicationsTrademark & Copyright Protection & Enforcement
    V
    Venture Tech & Emerging Growth Companies
    W
    White Collar Investigations & DefenseWorkers’ Compensation
    • New Jersey
    • New York
    • Pennsylvania
    • Blogs
    • Articles
    • Podcasts
    • COVID-19 Resources

    Categories

    Anti-Trust/Trade Regulations Banking/Financial Services Business Operations Choice of Entity Compliance Construction Corporate Finance/Securities Corporate Governance Corporate Transparency Act Economic Development Law Entity Formation Franchise Law General Liquor Law Mergers & Acquisitions Public Utilities Real Estate Tax Uncategorized
    Blogs > Biz Law Blog > When the CCO Is Not...
    NM PR
    Visit Profile

    When the CCO Is Not Compliant: Failure To Have Independent Testing of Broker/Dealer AML Compliance

    When the CCO Is Not Compliant: Failure To Have Independent Testing of Broker/Dealer AML Compliance

    Broker/dealers, which function as intermediaries between buyers and sellers of securities, are registered with and regulated by both the U.S. Securities and Exchange Commission (“SEC”) and the Financial institution Regulatory Authority (“FINRA”). They may also be subject to regulatory requirements as part of having trading privileges by particular exchanges such as the NYSE and NASDAQ. Enacted in 1970, the Bank Secrecy Act (“BSA”) established a monitoring and reporting system for banks and all other financial institutions, including broker/dealers, specifically designed to prevent “money laundering.” Money laundering is the transmission of funds either obtained from illegal activities (such as selling narcotics) or intended for illegal activities (such as terrorism). Hence, broker/dealers are obligated to have both strong policies and strong procedures that are anti-money laundering (“AML”).

    When the CCO Is Not Compliant

    Those policies and procedures are intended to deter money laundering, and if it occurs, to detect it and report it as Suspicious Activity Reports (“SAR”) to the designated authorities, typically FinCEN (the Financial Crimes Enforcement Network, a unit of the U. S. Department of the Treasury). As part of the requisite AML program, the program of each broker/dealer and its effectiveness must be tested at least annually. This is consistent with other aspects of compliance, as the author has written about in the November 19 Risk Alert concerning registered investment advisers “Meeting Specified Standards: The SEC’s OCIE Assess Compliance.” However, unlike the case regarding registered investment advisers, with broker/dealers, the Chief Compliance Officer (“CCO”) may NOT oversee all.

    A major difference between registered investment advisers and broker/dealers is that broker/dealers handle, or at least have access to, the cash and securities owned by customers. That key difference has had more than one substantial regulatory consequence. Under the SEC’s Custody Rule, any registered firm with custody of customer assets must be subject to a no-notice audit at least annually as a way of inhibiting careless and/or intentional dissipation of those assets. It is not enough for the registered firm’s compliance or audit personnel, or even the firm’s regular outside auditor, to conduct the custody audit. Custody audit results are given both to senior management and to the SEC. For those who have served in the U.S. Air Force, as did the author, these audits bring to mind Operational Readiness Inspections. Making matters even more complex, “Custody” for these purposes goes far beyond physical possession and includes the authority to direct others to sell or transfer assets (including possession of computer access codes).

    Independent Testing of Broker/Dealer AML Compliance

    Similarly, under FINRA’s Rule 3310, “Anti-Money Laundering Compliance Program,” the at least annual test of a broker/dealer’s AML program must be conducted by independent persons not subordinate to or otherwise likely to be influenced by the person(s) responsible at the broker/dealer for its AML compliance program. In November 2020, FINRA found that a broker/dealer had not met the AML compliance program independent test requirement in 2016, 2017, and 2019 because the testing was not conducted by independent persons; in one year the “tester” was actually supervised by the firm’s CCO. As part of a settlement with FINRA, the broker/dealer agreed to a  revised independent testing program in future years and paid a $5,000 civil money penalty.

    Interestingly, one national BigLaw firm advertises in its blogs about compliance: “HOW’S YOUR AML PROGRAM? An AML Audit by …Compliance [an affiliate of the BigLaw firm] provides your firm with an independent AML Audit as required under FINRA Rule 3310© - it’s a lot more cost-effective than the potential fine!”

    If you have concerns about YOUR AML Program, including how best to arrange for an independent audit, you may wish to consult with a Norris McLaughlin attorney. If you have any questions about this post or any other related securities or general business law matters, please do not hesitate to contact the attorneys in our Business Law Group.

    NM PR
    Visit Profile

    Related Posts

    When the “Back Door” is Closed: Muni Bond Underwriter Sanctioned “Oh, Baloney!” SEC Sues Father, Son, and Friend for Manipulating the Stock of a New Jersey Deli Who Pays and How Much? Consolidated Audit Trail Funding

    Share

    Tags

    #Broker #Cybersecurity #Investment Advisers #SEC

    Helpful links

    • About Us
    • News
    • Services
    • Blogs
    • Attorneys
    • Articles
    • (COVID-19)
    • Award Methodology
    • Events
    • Join our Team
    Connect
    Online Payment

    Connect with Us

    • LinkedIn
    • Facebook
    • Twitter
    • Instagram
    • Youtube

    Join our growing team

    We are looking for quality attorneys to help us do more for our clients. At Norris McLaughlin, each attorney has the same opportunity to succeed whether you’re at the beginning of a career or pinnacle of the profession.

    Learn More

    Subscribe to our content

    Receive timely legal information delivered to your inbox

    This field is for validation purposes and should be left unchanged.
    © , Norris McLaughlin, P.A., All Rights Reserved. Attorney Advertising.
    VIEW OUR DISCLAIMER,  TERMS OF USE,  AND PRIVACY POLICY

    We use cookies to ensure that we give you the best experience on our website. If you continue to use this site we will assume you consent to our cookie policy. Learn more