FINRA published guidance concerning the anti-money laundering ("AML") obligations of member firms under FINRA Rule 3310. The guidance provides additional information in light of FinCEN's new rule on customer due diligence (the "CDD Rule"). In the Regulatory Notice, FINRA explained that the CDD Rule requires firms to supplement the "four pillars" of a written AML program (policies and procedures, independent testing, designated responsible individuals, and ongoing training) with a "fifth pillar" focused on CDD.
Specifically, FINRA states that the CDD Rule requires firms to identify and verify the identity of the beneficial owners of all legal entity customers at the time when a new account is opened, subject to certain exclusions and exemptions. The CDD Rule requires firms to obtain this information from the natural person opening an account on behalf of a legal entity customer. To ensure that member firms receive candid information about beneficial owners, the CDD Rule also requires persons who provide ownership details to member firms to certify the accuracy of that information.
Additional aspects of the new "fifth pillar" set forth in the CDD Rule are requirements that firms understand the nature and purpose of customer relationships, maintain and update customer information, and conduct ongoing monitoring to report suspicious activities.
The Regulatory Notice states that firms should consult the CDD Rule, as well as FinCEN's related FAQs, to ensure that the firm's AML program is written and implemented in accordance with the CDD Rule. Although FinCEN's CDD Rule does not alter FINRA Rule 3310, FINRA is considering whether further rulemaking is necessary.
The CDD Rule became effective on July 11, 2016, and firms are obligated to be in compliance by May 11, 2018.
Commentary / Christian Larson
FINRA issues more enforcement decisions for AML failures than any other U.S. regulator, so member firms should take note of this guidance and the CDD Rule. The fact that the CDD Rule does not alter FINRA Rule 3310 could be misunderstood to mean that FINRA member firms need not make any adjustments. In fact, the CDD Rule alters the underlying codified requirements to which FINRA Rule 3310 refers. FINRA member firms will need to ensure that their AML programs are reviewed and revised as necessary to ensure compliance with the CDD rule.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
