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SEC Issues Warning to Wall Street Stockbrokers Over Anti-Money Laundering (AML) Deficiencies

The US Securities and Exchange Commission (SEC) has issued a risk alert, cautioning Wall Street stockbrokers to enhance their efforts in preventing money laundering activities within their operations.

SEC Issues Warning to Wall Street Stockbrokers Over Anti-Money Laundering (AML) Deficiencies

The alert follows the SEC's observation of inadequate allocation of resources and staffing toward anti-money laundering programs by broker-dealers. Additionally, some firms displayed inconsistencies in the implementation of policies and procedures aimed at preventing financial crimes.


The SEC's examinations unit conducted periodic on-site reviews of Wall Street firms and identified various deficiencies in their anti-money laundering programs. Notably, broker-dealers failed to conduct thorough customer vetting during account opening, neglecting to verify the true identity of customers. Some broker-dealers also lacked timely testing of their anti-money laundering controls and failed to maintain documentation of such testing. The independent testing of these programs was found to be insufficient, indicating weaknesses in the AML framework.


Moreover, the SEC highlighted that certain broker-dealers had not updated their training materials to reflect changes in the anti-money laundering regulations. Furthermore, they were unable to demonstrate that their employees had undergone required training on anti-money laundering measures.

The 2016 adoption of rules by the Treasury requires specific financial institutions to identify beneficial owners behind legal entities they engage with. Congress enacted legislation in 2021 to address the use of anonymous shell companies, further emphasizing the need for stringent anti-money laundering measures.


The SEC's risk alert also underscored the impact of geopolitical events on the urgency to prevent sanctions evasion. The Russian invasion of Ukraine has heightened concerns about potential misuse of broker-dealer services for illicit purposes.


Last month, Merrill Lynch was fined $6 million by the SEC for failure to file suspicious activity reports, which are designed to alert authorities to potential instances of money laundering. The bank also incurred a $6 million fine from the Financial Industry Regulatory Authority (FINRA).

The SEC's risk alert serves as a reminder to Wall Street stockbrokers of the critical importance of robust anti-money laundering programs and diligent adherence to regulatory requirements to safeguard the integrity of the financial system.

By fLEXI tEAM



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