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Mitch Atkins to Speak at 2019 FMA Securities Compliance Seminar

Mitch Atkins, FirstMark’s founder and principal will be speaking on the Key 2019 Legislative and Regulatory Initiatives panel at FMA’s 2019 Securities Securities Compliance Seminar. The panel will take place on Wednesday, May 1, 2019 at 11:30 a.m. in Fort Lauderdale. The panel will cover areas of enforcement focus in the financial industry. Additionally, the panel will address key legislative initiatives and rulemaking that impact broker-dealers and others in the financial services industry. Topics Mitch Atkins will discuss include AML Compliance, and in particular small firm experiences with the FinCEN CDD Rule, FINRA’s 529 Share Class Initiative, including recently issued frequently asked questions published by FINRA, the FINRA High-Risk Broker (Firm) initiative, and FINRA Examination Priorities.

Other panelists will cover a broad range of topics, including cyber security, fintech, crypto enforcement, SEC’s Regulation Best Interest, CFTC priorities, FINRA’ s CAT, Rule 606, customer privacy, and others. The conference includes 14 separate panels covering a wide variety of financial industry compliance topics. The conference is being held at the Marriott Pompano Beach Hotel in Fort Lauderdale, Florida. There is still space available. To register, visit www.fmaweb.org.

One of the topics to be covered on the panel will include a review of small firm experiences with the implementation of the FinCEN CDD Rule which required compliance beginning May 11, 2018. The Rule mandates that covered financial institutions implement procedures to ascertain the identities of beneficial owners and a control person for certain legal entity customers. Additionally, clients must certify as to the accuracy of this information. FirstMark Solutions has recommended that small and mid-sized FINRA members who are still struggling with the requirements consider utilizing the revised FINRA Small Firm Anti-Money Laundering Template to develop their procedures for compliance with the FinCEN CDD Rule. Additionally, FirstMark Solutions has also prepared a practical guide covering the requirements of the rule, and how firms can properly implement procedures to ensure they are compliant. That guide can be found here.

Epic BD AML Compliance Failure Yields Another Record Fine

On Monday, December 5, 2016, FINRA announced yet another record fine against a broker-dealer for AML compliance failure. This action follows another just seven months ago in which FINRA fined a broker-dealer complex $17 million for AML compliance failure. There are numerous messages here which you can read about in my LinkedIn article that analyzes the new case. The bottom line here is to remember that the days of a slap on the wrist for a firm with a serious AML compliance failure are over. FINRA has demonstrated that it will not hesitate to slap a broker-dealer with a significant sanction, and even to name individual AML compliance officers if violations are serious. There are parallels between this case and FINRA’s May 2016 action against a Florida BD complex. Read my summary of that case here.

The case involved several significant areas of compliance breakdowns. The firm utilized and automated surveillance system, but according to the FINRA settlement document, the data feeding into the system was inaccurate and/or missing information critical to its proper functioning. FINRA also found that the system did not utilize scenarios to detect specific types of activity that it believed the firm systems should have covered.

Another AML compliance failure was that there were deficiencies in the manner in which the firm determined ownership and saleability of microcap securities. FINRA noted that the firm was involved in the liquidation of over 3.7 billion shares of microcap issuers during its review period and earned $10.4 million in commissions from same. Because the system for determining whether the shares could be properly liquidated was inadequate, FINRA found that the firm violated NASD Rule 3010, FINRA Rule 3110, and FINRA Rule 2010.

The AML compliance failure also involved inadequate procedures covering suspicious activity reporting, and failure to conduct adequate due diligence on foreign financial institutions that were also firm affiliates.

FINRA Tolerance for AML Compliance Failures Fading

AML compliance failures are starting to get the “zero tolerance” message from FINRA. It recently announced its largest fine ever against two firms for AML compliance failures, including the suspension of the AML compliance officer. Mitch Atkins, a former FINRA official breaks down this action in a LinkedIn article. In reality, these sanctions are not too different in scope than that which was levied on Brown Brothers Harriman in 2014. The difference is there are two firms involved in this sanction. Also, the failures in the Brown Brothers case appear to be more limited to the area of low-priced securities and while that is an element of the recent action, it seems broader in scope as to the nature of the compliance failures.

At the recent FINRA Annual Conference in Washington, D.C., FINRA’s head of Enforcement, Brad Bennett, indicated in his comments during a panel discussion that there were more enforcement cases to come in the AML compliance space. Bennett stated that FINRA noted a signficant number of red flags in the recent case, but he suggested that future cases may involve actual money laundering rather than just compliance failures. I suspect these cases will be as significant or more significant given the apparent escalation of sanctions of late.

AML Compliance Failures Don’t Necessarily Mean AMLCOs will be Named

The good news is that Bennett reassured the attendees that the action against the AMLCO in this case was an exception and that FINRA is not out to get compliance officers. He insisted that FINRA carefully considers naming compliance officers and would rather not do it at all. FINRA has long stated that compliance officers who are doing their jobs and who take reasonable steps to address compliance issues will not be named in disciplinary actions. Bennett warned, however, that should senior executives ignore the calls of compliance officers for additional resources and compliance failures were the result of such decisions, FINRA would not hesitate to name them in an action.

Mitch Atkins is a consultant to broker-dealers, investment advisers and financial firms. He has over 23 years experience in the securities industry and is the founder and principal of FirstMark Regulatory Solutions based in Boca Raton, Florida.