SEC Tells Some Wall Street Brokers to Clean Up Their Anti-Money-Laundering Controls
Regulator issues risk alert citing flaws in certain broker-dealers’ efforts to combat the flow of dirty money The SEC didn’t name any companies in its risk alert. Photo: Andrew Harnik/Associated Press By Dylan Tokar Aug. 2, 2023 12:43 pm ET Some Wall Street stockbrokers must do more to ensure their services aren’t being used to launder dirty money, the U.S. Securities and Exchange Commission said. The SEC’s examinations unit this week issued a risk alert saying it had observed broker-dealers that weren’t putting enough resources or staffing into their anti-money-laundering programs. The unit also found that some firms were inconsistent in their implementation of policies and procedures designed to stop financial criminals. No firms were named. Under U.S. laws, banks and other fin
The SEC didn’t name any companies in its risk alert.
Photo: Andrew Harnik/Associated Press
Some Wall Street stockbrokers must do more to ensure their services aren’t being used to launder dirty money, the U.S. Securities and Exchange Commission said.
The SEC’s examinations unit this week issued a risk alert saying it had observed broker-dealers that weren’t putting enough resources or staffing into their anti-money-laundering programs. The unit also found that some firms were inconsistent in their implementation of policies and procedures designed to stop financial criminals. No firms were named.
Under U.S. laws, banks and other financial-services firms are required to maintain controls to stop the flow of illicit funds. The SEC for years has policed broker-dealers’ anti-money-laundering programs, occasionally issuing fines to firms that fall short.
The SEC in July fined Merrill Lynch $6 million for failing to file so-called suspicious-activity reports, which are intended to alert authorities to possible instances of money laundering. Merrill Lynch also agreed to pay another $6 million fine to the Financial Industry Regulatory Authority, the brokerage industry’s self-regulator.
Russia’s invasion of Ukraine has placed more pressure on financial institutions such as broker-dealers, which are required to screen for any efforts to evade economic sanctions placed on Moscow in response to the war. U.S. authorities have promised to crack down on sanctions evasion by oligarchs or others with ties to the Kremlin.
The SEC’s examinations unit said it witnessed a variety of flaws in broker-dealers’ anti-money-laundering programs during the periodic, on-site reviews it conducts of Wall Street firms.
For one, some broker-dealers weren’t conducting timely testing of their anti-money-laundering controls, or keeping documentation to show they had conducted such testing, according to the regulator. Independent testing of the programs also was inadequate, the SEC said.
Some broker-dealers haven’t been updating their training materials to reflect changes to anti-money-laundering laws, or weren’t able to demonstrate that their employees had taken the appropriate training, the SEC added.
Anti-money-laundering laws require broker-dealers to do some basic vetting of customers that seek to open accounts with them, but some firms aren’t making the effort to ensure they have a reasonable idea of the real identity of their customers, the regulator said.
The U.S. Treasury in 2016 adopted rules that require certain financial institutions to identify the beneficial owners behind any legal entities they do business with. In 2021, Congress passed legislation to crack down on the use of anonymous shell companies.
But some broker-dealers haven’t updated their anti-money-laundering programs to account for the Treasury’s 2016 rule and are at times opening accounts for customers without collecting any information about the owners behind the accounts, the SEC’s examinations unit found.
Write to Dylan Tokar at [email protected]
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