Anti-Money Laundering and Business Continuity Plans
With the New Year having arrived, it is important to note that FINRA has already commenced the implementation of their 2010 exam cycle examination schedule. With that said, it is also an excellent time for you to commence the review, update and implementation of your 2010 supervisory controls program. The first two items that you might want to review relate to rule changes in the Anti-Money Laundering Program (AML Program) and Business Continuity Plan (BCP).
FINRA Rule 3310 will replace NASD Rule 3011 on January 1, 2010. NASD IM-3011-1 previously permitted AML compliance program testing to be conducted by persons who report to either the AML Officer or persons performing the functions being tested, if the following four conditions were met: (1) the firm had no other qualified internal personnel to conduct the test; (2) the firm established written policies and procedures to address conflicts that may arise from allowing the test to be conducted by a person who reports to the person(s) whose activities he or she is testing (e.g., anti-retaliation procedures); (3) to the extent possible, the person conducting the test reported the results of the test to a person at the member who is senior to the persons described above; and (4) the firm had documented its rationale for utilizing the exception.
Based on recent guidance provided by FinCEN, FINRA Rule 3310 eliminates the above provision of IM-3011-1 which formerly permitted testing to be conducted by anyone who had an interest in the outcome of the testing. Therefore, testing may no longer be conducted by a person who performs the functions being tested; or by the designated anti-money laundering compliance officer, or by any person who reports to either of the aforementioned individuals.
In order to comply with the new provision as set forth in FINRA Rule 3310, firms should review their AML contact information to determine who has been appointed the AML Officer and who in the past has conducted the testing of the AML Compliance Program. Firms who previously relied upon the exception and do not plan on utilizing an independent third party to conduct the testing, should consider having the most senior official of the Firm conduct the testing and a subordinate be the AML Compliance Officer. Firms are reminded that if changes are made to the AML Compliance Officer, the FINRA contact questionnaire must also be updated.
Business Continuity Plans and Emergency Contact Information
NASD Rules 3510 and 3520 have both been replaced by FINRA Rule 4370 (Business Continuity Plans and Emergency Contact Information), and there was a significant change to consider. As with NASD Rule 3520, FINRA Rule 4370 requires that each firm designate two emergency contact persons electronically via the FINRA contact system; however, FINRA Rule 4370 requires that only one of those two emergency contact persons be a registered principal of the firm. The second emergency contact person no longer has to be a registered principal, but must be a member of senior management, and who has knowledge of the firm’s business operations. FINRA Rule 4370 further states that both emergency contact persons must be associated persons of the member firm.
The second emergency contact for firms with only one associated person may be an individual, (registered or nonregistered), who has knowledge of the firm’s business operations, such as the firm’s attorney, accountant or clearing firm contact.
Contact Questionnaire Update
As a brief reminder, the Business Continuity Plan and Anti-Money Laundering contact information, along with all other firm contact information must be updated by January 27, 2010. Firms are reminded to review the contact information as currently filed with FINRA, and make any necessary updates. Even if updates are not required to the contact information, the information must be verified, and re-submitted to FINRA.
We hope you have found this information helpful. Should you have any additional questions or concerns, please feel free to contact Daniel E. LeGaye or Michael Schaps* at 281-367-2454, or via email at Dan.LeGaye@LeGayeLaw.com or Michael.Schaps@LeGayeLaw.com, or consult with your legal counsel or applicable third party consultant.
This legal update has been provided to you courtesy of The LeGaye Law Firm, P.C., 2203 Timberloch Drive, Suite 100, The Woodlands, Texas 77380. Visit our web site at www.legayelaw.com. The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for individual advice regarding your own situation. Not Board Certified by Texas Board of Legal Specialization. Michael Schaps is not licensed to practice law.