FINRA Tightens AML Testing Requirements
As part of its rule consolidation process, FINRA eliminated the AML testing exception that had allowed, in certain circumstances, the testing of the AML program by a person with an interest in the program. The old NASD IM-3011-1 allowed the testing person to report to the AML compliance officer or another person that performs AML functions so long as the firm has no other internal qualified personnel, the testing is reported to somebody higher up in the management chain, and the firm adopted applicable policies and procedures addressing conflicts. FINRA eliminated this exception, stating that it is inconsistent with the FinCEN position on independent testing. The new rule prohibits testing by the AML compliance officer, a person who performs AML functions, and any person who reports to them.
OUR TAKE: The net result is that larger organizations will need to utilize an outside party or some independent internal audit function to conduct annual AML testing, and smaller firms will need to retain an outside firm. Advisers that implement anti-money laundering procedures generally follow the FINRA guidelines.