AML Recordkeeping: Best Practices

Books and records relating to a firm’s Anti-Money Laundering Program may be reviewed by FINRA, the SEC, and/or state examiners during regulatory examinations. SEC and Bank Secrecy Act rules outline recordkeeping and record retention requirements for broker-dealers. Generally, AML related records must be retained for a period of at least five years.

The below is meant to be guidance in assisting broker-dealers set up and maintain files to demonstrate maximum compliance with AML rules and regulations. By maintaining accurate, detailed, and organized books and records your firm will find on-site regulatory and independent examinations to be much more efficient. Additionally, this could help in reducing the chance of findings in regulatory examinations which could lead to fines or other actions.

The following are ten best practices for maintaining AML related books and records:

1. AML Policies and Procedures Manual: Your firm should be able to quickly produce all versions of your AML program going back five years. Dates should be noted on each version to identify both the effective date, and end date, if applicable. Also, the CCO, AML Compliance Officer, or other senior member of the management team should sign the document to evidence the person who has made these written policies effective on behalf of the organization.
2. AML Training Records: The firm should maintain an annual file for training records which outlines the topics covered, method of training, copies of materials used, and evidence of completion for person the firm deems required whether registered or not.
3. FinCEN 314(a) Reviews: Firms record their reviews of 314(a) requests in a variety of ways. As a best practice, firms should maintain clear records (a log, or print of the FinCen Verification Report) that include the FinCEN transmission date, date of review, person who completed the review, and whether matches were found. The actual names and businesses should not be printed out, as this information is considered confidential.
4. FinCEN 314(b) Sharing Notification: If your firm shares AML related information, or uses a clearing firm who requires a 314(b) filing, the firm must complete this fling through FinCEN and maintain evidence of the filing. The filing can be conducted online or by mail. FinCEN, upon receipt of the notification, will transmit an e-mail notification to the AML contact at the firm acknowledging the filing and establishing an effective date. These filings are valid for 12 months and should be renewed timely prior to expiration.
5. Prior AML Examination Reports: A file should be maintained to show evidence of testing in prior 5 years. These reports should include areas reviewed, results of testing, action taken as a result of the findings (if applicable), and documentation to demonstrate these findings were communicated to senior management.
6. Employee Outside Brokerage Accounts: The firm should maintain a master list of all employee outside brokerage accounts. If your policies require duplicate statements, they should be segregated by person, in order by month or quarter, and each statement should evidence principal review.
7. Clearing Firm Agreements: For firms working with a clearing firm, the clearing agreement should be on file and available to review. The clearing agreement, in regards to AML, usually addresses AML monitoring, the requirement for a 314(b) filing, and responsibilities of each party.
8. Third Party Reliance: Some firms rely on a third party regulated financial institution to perform CIP reviews or OFAC checks on the investor. If this is the case, the reliance must be documented in the firm’s AML manual and there should be an agreement with this third party which specified they have an AML program in place and will conduct CIP or OFAC checking on behalf of the broker/dealer.
9. Contacts and Vendors: The firm must ensure the FINRA Contact System is updated with the proper AML contact and their current email address. Additionally, individual responsibilities with a firm may change. Therefore, on an ongoing basis, the firm should ensure their AML procedures correctly identifies the person or entity responsible for AML recordkeeping, independent testing, OFAC reviews, 314(a) reviews, training, and the proper AML Compliance Officer is designated.
10. OFAC: Clients should be screened against the OFAC list when starting a new relationship with the firm, and then on an annual basis. Firms should set a reminder for themselves to conduct this screening the same month every year and evidence all names were screened. False positives should be accompanied by notes to document them as such, and positive matches must be reported to law enforcement immediately.

The above records are not all AML records that must be retained by your firm, but are the most common records which tie into deficiencies during examinations. By maintaining the above records in an orderly manner, your firm can reduce its regulatory exposure in this area.

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