SEC continues to impose major fines in connection with inadequate AML compliance, citing that a cut-and-paste approach to meeting the requirements is not an option.
AML enforcement is rigid. As such, even large companies with strict AML compliance measures are rarely immune from AML enforcement. An instance occurred last quarter on May 12, 2021. The Securities and Exchange Commission ("SEC") enforced a $15 million monetary penalty on broker-dealer, GWFS Equities Inc. ("GWFS"). The penalty penalized GWFS for its inability to adhere to the Bank Secrecy Act ("BSA"). GWFS maintained a generally robust and functional anti-money laundering ("AML") program. However, based on their inadequate Suspicious Activity Reporting ("SAR") adherence, the SEC imposed major fines, citing that a cut-and-paste approach to meeting the requirements was not an option and posed threats to overall security.
As of late, the increase in cyber fraud and online malicious activities has seen a considerable spike in activity. Government bodies now pay closer consideration to ensure that banks and other financial institutions do not fall short of their obligations to protect and fight cybercrime and fraudulent online activities. It is critical that broker-dealers understand that it is never enough to have a "cookie-cutter" compliance program. Their workforce and compliance staff must be properly trained to report all suspicious activities in compliance with securities laws and regulations.
GWFS has an affiliation with Great-West Life & Annuity Insurance Company, therefore has a responsibility of identifying and monitoring suspicious monetary transactions that took place in Great-West Life plan customers’ accounts. Based on the enforcement action, the SEC confirmed that GWFS failed to file over 130 SARs, as it was required to do. The GWFS’ BSA officer took steps to review and investigate different reports on some accounts that might have been exposed to an account takeover in excess of$5000. However, even after determining a need to file SARs, GWFS never took steps to file any SARs.
According to the enforcement action, although GWFS maintained a significant robust and functional investigative team that took measures to gather data on account takeovers, the SEC took measures to enforce penalties in connection with some SARs that were inadequately filled. GWFS managed to secure a reduced penalty due to its significant remedial measures. The remedial measures include the ability to implement new SAR procedures, increase their AML compliance team and fix the SAR process for improved quality control.
As a reminder, amended rule 203A-2(e) will impose certain reporting, recordkeeping, and compliance requirements on investment advisers relying on the exemption.
FINRA's Examination team conducts exams every member firm at least every four years and as often as annually. See Form CRS exam findings.
The Securities and Exchange Commission (SEC) voted to approve a new set of cybersecurity rules. Please see the below CCO Refresher.
