Here’s How FINRA’s AML Sanctions Could Affect You

In late September 2022, FINRA announced a revision to its Sanctions Guidelines.  The revisions included potential penalties that may be levied against member firms for violations of anti-money laundering (AML) rules. FINRA’s move to define in these guidelines their areas of focus and the penalties that may be associated with violations of AML rules sends the clear message that money laundering concerns are and will remain a priority for the regulators.

Under the new guidelines, FINRA could levy AML fines ranging from $10,000 to $310,000 against small firms (fewer than 150 registered persons), while the cost for the same violation to a midsize or large firm could start at $50,000 with no limit to the maximum amount of the fine.

According to the 2022 Sanctions Guidelines, penalties for AML violations can go beyond guidelines and could include barring associated persons and expelling member firms. FINRA looks at multiple factors in considering sanctions, including:

  • Relevant disciplinary history
  • Patterns of misconduct
  • Misconduct over an extended period of time
  • If the misconduct was intentional or the result of recklessness or negligence
  • If the misconduct was concealed from regulators
  • If the misconduct occurred to a customer aged 65 and older

FINRA  spelled out specific areas of a firm’s AML program that will be reviewed for deficiencies and the financial penalties that may be associated with those deficiencies: 

Failure to reasonably monitor to report suspicious transactions. If a firm’s written AML program includes policies and procedures reasonably designed to detect and allow for reporting of suspicious transactions, but the firm fails to implement them, sanction include:

  • Small firm fines of $10,000 to $310,000
  • Midsize or large firm fines beginning at $50,000 with no stated maximum

Deficient AML compliance program. Does a firm’s written AML program include policies and procedures reasonably designed to comply with BSA requirements and other regulations regarding a customer identification program, beneficial ownership requirements and due diligence for correspondent accounts? Does a firm’s written AML program include requirements related to ongoing customer due diligence? Sanctions for a deficient AML compliance program include:

  • Small firm fines of $10,000 to $100,000
  • Midsize or large firm fines of $20,000 to $310,000

Failure to provide for independent testing, designation of responsible individuals and training. Does a firm’s written AML program provide for independent testing of the firm’s AML program and identify for FINRA the person responsible for the firm’s AML program and on-going AML training? Sanctions include:

  • Small firm fines of $5,000 to $50,000
  • Midsize or large firm fines of $20,000 to $200,000

FINRA makes it clear that these potential financial penalties are guidelines, and aggravating factors could result in higher fines and firm suspensions of 10 days to two years.

Regularly reviewing and updating your firm’s written AML policies, procedures and controls is vital to reducing the exposure your firm has to these potential penalties. Testing your Customer Identification Program as well as your trade and activity surveillance systems should occur in conjunction with any AML program changes to ensure processes are occurring as defined in policies and procedures.

Having a well-designed and regularly tested program is a critical part of an effective AML program. Oyster’s AML experts can assist your firm in designing and testing your programs to achieve a robust and compliant program.

About The Author

Mary Catherine Wilck-Pond brings almost 30 years of brokerage operations management experience to her role as an Associate Director at Oyster Consulting. Mary Catherine has worked with many of Oyster’s clients, varying in size from regional to national firms. Her engagement experience has included reviews and recommendations for operational process improvements, managing enhanced due diligence/know your customer Anti-Money Laundering (AML) teams and performing Rule 3012/3120 and independent AML program testing.

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