AML Indpendent Testing

FINRA Rule 3310

AML Test Requirements

Bank Secrecy Act
Office of Foreign Assets Control

  • FINRA Rule 3310(c)

    The question often arises, “how frequently must I have an AML independent test?” And believe it or not, what seems like a simple answer can get slightly complicated.

    • FINRA Rule 3310(c) requires that each member “provide for annual (on a calendar-year basis) independent testing for compliance…”
    • AML independent testing should be performed more frequently if warranted
    • The person performing the test must be qualified
    • If not performed by an outside party, the AML independent testing may be completed by an internal person who:
      • does not perform any of the functions being tested
      • reports to a person other than the AMLCO or someone performing the functions being tested
      • is not the AMLCO
    • The AML independent testing may be performed anytime during the year, as long as it is performed at least once in each calendar year (unless the firm does not execute transactions for customers, meaning it engages solely in proprietary trading, or does business only with other broker-dealers).

  • Bank Secrecy Act

    The Bank Secrecy Act and the implementing regulations thereunder are promulgated by the Department of the Treasury. FINRA Rule 3310 requires that each FINRA member develop a written anti-money laundering program that is, “reasonably designed to achieve and monitor the member’s compliance” with BSA requirements. The BSA includes the following regulations for broker-dealers:

    • AML program requirements (establishment of AML programs)
    • Customer identification programs
    • Reporting requirements, including suspicious transaction reporting
    • AML recordkeeping
    • Information sharing
    • Special standards of diligence (correspondent accounts, private banking accounts, enhanced recordkeeping, etc.)
    • Prohibitions (correspondent accounts of foreign shell banks)
    • Compliance with special measures

  • Office of Foreign Assets Control

    All broker-dealers operating in the United States are subject to the requirements of OFAC which is an office of the U.S. Department of the Treasury. Broker-dealers must develop procedures that are adequate to:

      • verify identities of certain transmitters and recipients of wires and to compare those persons or entities against government lists
      • verify identifies of account holders and to compare those persons or entities against government lists
      • take action when appropriate notifications are received related to blocked assets or accounts
      • report blocked transactions

  • FINRA AML Examination Prep

    FINRA has published this guide for its members in preparing for an AML examination during routine cycle examinations. The guide is quite useful.

  • AML Recordkeeping

    In conducting AML independent testing, FirstMark assesses a client’s compliance with the AML recordkeeping requirements and provides feedback and recommendations as needed. FINRA has published a comparison of the AML records requirements with the SEC books and records requirements.

BEYOND THE LETTER OF THE RULE

FINRA requires that AML independent testing be completed by a person who is competent in the area of AML. Beyond what the rule requires, an AML test conducted by an experienced professional can be of significant benefit to the client. A strong AML compliance program helps to prevent and detect those who desire to use your firm to facilitate potentially illicit activity.

aml independent testing

FINRA’s AML Independent Testing Rule

FINRA Rule 3310 (the FINRA AML Rule) specifies that all broker-dealers registered with FINRA must:

    • Design, implement and enforce policies and procedures to identify and report suspicious transactions
    • Design, implement and enforce policies and procedures to achieve compliance with the Bank Secrecy Act and the implementing regulations thereunder – Rule 3310(b)
    • Periodically test the effectiveness of AML compliance programs using independent testing –Rule 3310(c)
    • Designate to FINRA (using the FINRA Contact System) one or more persons to be responsible for the member’s AML programs and provide updates to FINRA as changes occur– Rule 3310(d)
    • Provide training (on an ongoing basis) for appropriate personnel –Rule 3310(e)
    • Include appropriate risk-based procedures for conducting ongoing customer due diligence – Rule 3310(f)

Often, broker-dealer compliance staff ask FirstMark when their AML independent testing must be completed. The FINRA rule simply provides that each member “provide for” an AML test once each calendar year, or if the firm is a proprietary trading firm or only deals with other broker-dealers, once every other calendar year.  The phrase “provide for” is used because the firm may either utilize internal personnel to conduct the test or contract with an outside provider for the test. If the former, FINRA is specific in the supplementary material to the rule – 3310.01(c) – as to who within the firm may not conduct the test. Principally, individuals who are conflicted may not be involved in the test.

In many cases, FirstMark is contracted to conduct an AML independent testing because the firm desires to have an outside opinion as to its AML compliance program. FirstMark brings the perspective of its founder, Mitch Atkins, who was oversaw the creation of FINRA’s National AML Investigative Unit in 2012 and numerous high profile FINRA AML cases. Atkins understands what FINRA expects of its member’s AML programs. Remaining current in the AML space requires vigilance and constant networking with others in the AML compliance field. Atkins maintains numerous networking relationships which help him bring the most current knowledge to your AML independent testing engagement.

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