FINRA Reminds Firms to Prepare for New AML/CFT Priorities

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We previously blogged about the Financial Crimes Enforcement Network’s (“FinCEN’s”) issuance on June 30 of the first government-wide list of priorities for anti-money laundering and countering the financing of terrorism (“AML/CFT”) (the “Priorities”), as required by the Anti-Money Laundering Act of 2020 (“AML Act”). The eight-item list was a “greatest hits” rundown of modern financial crime: corruption; cybercrime; foreign and domestic terrorist financing; fraud; transnational criminal organization activity; drug trafficking organization activity; human trafficking/smuggling; and proliferation financing. (Notably, the list was unranked.)

That June 30 announcement started a countdown to New Year’s for FinCEN, which is required by the Bank Secrecy Act (“BSA”), as amended by the AML Act, to promulgate appropriate regulations regarding the Priorities within 180 days of their release.

In anticipation of the release of those regulations sometime in the next two months, on October 8, the Financial Industry Regulatory Authority (“FINRA”) issued Regulatory Notice 21-36 (“RN 21-36”), subtitled “FINRA Encourages Firms to Consider How to Incorporate the Government-wide Anti-Money Laundering and Countering the Financing of Terrorism Priorities Into Their AML Programs”.

RN 21-36 is clearly designed as a “calendar alert” for securities firms, letting them know that more AML/CFT regulations are coming in 2022. It also assumes, likely with reason, that such non-bank financial institutions (“NFBIs”) may not have been attuned to the potential ramifications of the Priorities for their business. In its Summary, RN 21-36 provides links to both the Priorities and a contemporaneous FinCEN statement specifically directed at NFBIs (which the Summary notes “include[es] broker-dealers”) on how to approach the Priorities.

The gist of RN 21-36, besides refreshing readers on (or revealing) the eight (frustratingly unranked) Priorities, is to “encourage[] members firms to begin to evaluate how they will incorporate and document the AML/CFT Priorities, as appropriate, into their risk-based AML programs.” The notice makes reference to FINRA Rule 3310, which states that “[e]ach member shall develop and implement a written anti-money laundering program reasonably designed to achieve and monitor the members’ compliance with the requirements of the Bank Secrecy Act (31 U.S.C. 5311, et seq.), and the implementing regulations promulgated thereunder by the Department of the Treasury.” While RN 21-36 stresses that the issuance of the Priorities has not triggered a change in BSA requirements or concomitant FINRA expectations, one gets the distinct impression that firms will be expected to “hit the ground running” when FinCEN finally issues its regulations.

The problem here, as we blogged previously, is that the Priorities “provide little guidance to financial institutions attempting to figure out how to focus their limited compliance resources.” The great breadth of the Priorities, at least as currently promulgated and prior to forthcoming regulations, means that financial institutions, including the NFBIs to which RN 21-36 is directed, don’t receive the benefit of any direction in how to make the hard choices of how to allocate compliance resources. Moreover, they now risk being held to a heightened standard of culpability when a compliance shortcoming is inevitably found to fall under the aegis of one or more Priorities.

Realistically, the best action items NFBIs can take away from a review of RN 21-36 is to prepare their AML/CFT compliance teams for an all-hands-on-deck January 2022, and to make sure their news alerts for FinCEN announcements are up-to-date.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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