Each year, the Financial Industry Regulatory Authority (FINRA) puts out its Regulatory and Examination Priorities letter. This missive's primary purpose is to communicate which issues are going to be important to the organization in the upcoming year. As such, it is of keen importance to financial institutions: FINRA, despite its independent and non-profit status, is authorized by Congress to help ensure that the securities industry is run honestly and fairly.
In this year's letter, the organization announced that AML compliance would be a primary concern, especially as it relates to institutional business. FINRA noted a particular trend that bears monitoring: namely, the liquidation of large volumes of low-cost securities via executing broker dealers by certain DVP (Delivery versus Payment) and RVP (Receipt versus Payment) customers.
The organization went on to detail its particular reasoning:
"We have also noted a misconception among some executing brokers that Customer Identification Program (CIP) requirements do not apply to DVP/RVP customers (who are not otherwise exempt) or that the prime broker is responsible for CIP on those customers. DVP/RVP customers meet the definition of an 'account' for CIP purposes, and, absent a formal reliance agreement with the prime broker, the executing broker is responsible for implementing CIP for these customers."
Therefore, in these cases, the financial institution retains the burden of due diligence. In the letter, FINRA stresses the importance of all firms having AML programs, regardless of their business models. These programs should be tailored particularly to the specific risks of their customer base, including but not limited to: location, type and services rendered.
Institutions that want to meet these standards would be well-advised to look into a flexible AML compliance solution.
