Between a Rock and a Regulator: Building an Effective AML Program in the Microcap Sphere

Holly Peck, CAMS-FCI

A securities firm’s AML obligations extend beyond prohibiting money laundering and terrorist financing. The SEC and FINRA require firms to monitor, detect and report any activity that could be considered fraudulent. This includes activity that may not be overtly related to money laundering or terrorist financing, but that still may be fraudulent activity under the securities Acts. These requirements place member firms in a difficult position as they strive to satisfy the Financial Crimes Enforcement Network, the governmental body charged in the fight against money laundering along with the SEC and FINRA. Speaking recently, Kevin Goodman, of the Office of Compliance Inspections and Examinations at the SEC, reinforced the requirements placed on broker-dealers: “AML includes far more than just preventing traditional money laundering. Broker-dealers must report large cash transactions and retain records on wire transfers regardless of whether any potential criminal activity is suspected. Broker-dealers must also monitor for and report suspicious activity, including activity that has no business or apparent lawful purpose. This goes beyond activity that implicates drug cartels or terrorist rings—it also includes activity that might indicate fraud, insider trading, or manipulative trading schemes.”

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