NEW YORK, Dec 17 (Reuters) - Wall Street’s industry-funded watchdog is stepping up efforts to monitor securities brokerages’ anti-money laundering compliance programs, acknowledging that firms continue to have problems more than a decade after a federal law boosted their requirements in this area.
The Financial Industry Regulatory Authority will expand a new specialized anti-money laundering examinations team to eight people from five, agency officials said on Tuesday.
FINRA continues to find problems with brokerages’ programs for complying with anti-money laundering rules more than 12 years after the Patriot Act added more surveillance and reporting requirements for them to follow, said Michael Rufino, head of FINRA’s member regulation unit, during a luncheon for compliance professionals in New York.
On Monday, FINRA announced a $1 million civil fine against Omaha-based COR Clearing LLC for failing to have an adequate program in place for monitoring potential money laundering by clients of the brokerage firms for which it clears securities.
The anti-money laundering group, along with a team devoted to compliance issues involving municipal bond sales practices, marks the watchdog’s move into specialized examinations, said Susan Axelrod, head of FINRA’s regulatory operations, during the event. The anti-money laundering team is based in Boca Raton, Florida.
FINRA examiners are typically general practitioners, Axelrod said. The regulator added the specialized teams because anti-money laundering and municipal bonds “require more specialized knowledge,” Axelrod later told Reuters in an interview.
The anti-money laundering team examines firms for issues such as whether they monitor the flow of money into and out of domestic accounts linked to foreign accounts, and if they investigate suspicious activity, Axelrod said. It reviews firms that pose the highest risks, such as those that trade heavily in very small company stocks, often a target for market manipulation, a securities fraud that often precedes money laundering. Those exams often result in enforcement cases by FINRA, Axelrod said.
“Having a specific money laundering group will bring more oversight into the examination,” said Aaron Kahler, director of anti-money laundering compliance services for a U.S.-based unit of Capgemini, a Paris-based global consulting firm. That will motivate chief compliance officers and chief risk officers to look more carefully at their anti-money laundering programs - something they should be doing anyway, Kahler said.
A separate team of seven examiners now focuses specifically on municipal bond issues. Some of those examiners have “significant industry experience” in issues such as underwriting and sales. The team will help ferret out policies firms have in place for fair pricing, conflicts, and disclosures, Axelrod said.
The specialized examination teams are another change in FINRA’s efforts during recent years to improve its program for examining brokerage firms. FINRA’s shift has included analyzing data from brokerages before sending examiners to firms’ offices, a practice that helps spotlight brokerages that may pose bigger risks to investors than others and more efficiently use FINRA’s examination resources, FINRA officials have said.