?? Elevate Your AML and Sanctions Compliance: SEC Urges Broker-Dealers to Strengthen Defenses

SEC Requests Enhanced AML and Sanctions Compliance from Broker-Dealers

?A recent risk alert from the SEC's Division of Examinations highlighted numerous deficiencies identified in examinations of broker-dealers' anti-money laundering (AML) and sanctions compliance programs, the SEC called on broker-dealers to review and strengthen their policies, procedures, and controls in light of these findings.

Independent Testing Concerns:

The SEC found multiple issues relating to independent testing, which broker-dealers must conduct annually under their AML programs. Deficiencies included failures to complete timely testing, inadequate testing coverage of business areas, lack of tester qualifications and expertise, outdated testing requirements, and delays in addressing observations.?

?To bolster independent testing, the SEC wants comprehensive risk-based assessments conducted by qualified personnel with AML experience, covering all aspects of broker-dealers' operations. Test results should also inform enhancements to AML programs, with timely remediation of identified issues.?

?Thomson Reuters' CLEAR Risk Inform could aid testing by providing deep visibility into subjects' criminal histories to facilitate a risk-based approach. Customized risk scoring reflects risk tolerance, transparent underlying data supports defensible determinations, and configurable permissions facilitate appropriate information access.

?AML Training Program Concerns:

The SEC also identified numerous AML training program deficiencies. These included outdated or generic training materials, inability to demonstrate personnel participation and comprehension of training, and lack of protocols to track and follow up with personnel who miss mandatory sessions.

?To address these issues, the SEC emphasized that broker-dealer training must cover evolving risks, be appropriately tailored for specific roles, track employee completion, and have attendance enforcement mechanisms.

?Customer Identification Program Issues:?

The SEC spotlighted several broker-dealer weaknesses in implementing Customer Identification Programs (CIP) in compliance with Bank Secrecy Act requirements. Specific shortcomings included:

• Failure to apply CIP in certain private placement situations?
• Missing or invalid collection and verification of essential customer information
• Deficient use of exception reports to highlight CIP non-compliance?
• Inability to evidence compliance with CIP procedures

The SEC called for appropriately tailored procedures and systems to substantiate customer identities in all situations to strengthen CIP. Data should also support a reasonable belief brokers know their customers across entities and beneficial owners.

Thomson Reuters CLEAR ID Confirm facilitates efficient identity confirmation against over 5 billion global public and proprietary data records encompassing credit headers, watchlists, global registries, and more. Configurable matching ensures relevancy to organizational needs, and transparent source visibility provides auditability while multiple interfaces enable system integration.?

?Customer Due Diligence and Beneficial Ownership Shortfalls?

The SEC's observations also highlighted weaknesses in complying with Customer Due Diligence (CDD) requirements to identify and verify beneficial owners of entity accounts. Failures included missing or inaccurate beneficial ownership information, inability to evidence verification procedures were followed, and lack of ongoing monitoring for non-individual account risks.?

The SEC called for broker-dealers to have an appropriate understanding of entity account ownership, control, and activities to manage risk properly. This necessitates accurate identification and verification of ultimate individual beneficial owners.

CLEAR Global Beneficial Ownership provides corporate registry insights across 190+ countries along with ultimate beneficial ownership details for associated individuals and entities to comprehensively meet CDD expectations. Link analysis charts illustrate complex ownership flows while matching algorithms connect global aliases.?

?Sanctions Compliance Program Gaps:

Lastly, the SEC pointed to sanctions compliance program elements needing enhancement. These encompass screening policies and procedures, investigating possible matches, updating for new sanctioned parties, documentation of compliance, and risk-based controls.

Broker-dealers need sufficient resources and systems dedicated to ensuring sanctions regulations are continuously and comprehensively adhered to. This includes understanding all involved parties to properly identify any prohibited nexus in light of complex ownership structures and frequently changing restricted lists.

?In addition to supporting beneficial ownership due diligence, CLEAR sanctions watchlist monitoring precisely screens across thousands of sources to accurately detect sanctioned entities while allowing customizable matching parameters. Associated record archives maintain screening audibility.

?Leveraging Solutions to Enhance AML and Sanctions Programs:

By leveraging regulatory technology solutions like those offered by Thomson Reuters, broker-dealers can efficiently evolve compliance programs to address rising SEC expectations around risk-based approaches, data integrity, and timely remediation of identified issues. The transparency and configurability of these tools also strengthen governance and oversight. Contact us today to see how we can help your AML efforts.