KYC, KYB and AML Rules for FINRA Regulated Dealers

As a FINRA-regulated broker-dealer, maintaining robust Know Your Customer (KYC), Know Your Business (KYB), and Anti-Money Laundering (AML) workflows is essential to comply with regulatory requirements and safeguard your firm against financial crimes.

Below is a checklist to help ensure your compliance programs align with FINRA rules:

1. Know Your Customer (KYC)

• Customer Identification Program (CIP):
  • Collect and verify essential customer information:
    • Full name
    • Date of birth
    • Address
    • Identification number
  • Maintain records of the identification information and verification methods used.
• Customer Due Diligence (CDD):
  • Understand the nature and purpose of customer relationships to develop a risk profile.
  • Conduct ongoing monitoring to identify and report suspicious activities.
• Enhanced Due Diligence (EDD):
  • Apply additional scrutiny to high-risk customers, such as politically exposed persons (PEPs) or those from high-risk jurisdictions.
  • Gather information on the source of funds and wealth.

Relevant FINRA Rule:

• FINRA Rule 2090 – Know Your Customer: Requires firms to use reasonable diligence to know and retain essential facts concerning every customer. FINRA

2. Know Your Business (KYB)

• Business Entity Verification:
  • Verify the legal status and ownership structure of corporate clients.
  • Identify and verify beneficial owners with a 25% or more ownership stake.
• Risk Assessment:
  • Assess the nature of the business, its products, services, and customer base to determine risk levels.
• Ongoing Monitoring:
  • Continuously monitor business accounts for unusual or suspicious activities.

Relevant FINRA Guidance:

• While FINRA does not have a specific rule titled “KYB,” the principles of customer due diligence and AML compliance extend to business entities.

3. Anti-Money Laundering (AML) Compliance

• Written AML Program:
  • Develop and implement a written AML program approved by senior management.
  • Ensure the program is reasonably designed to achieve compliance with the Bank Secrecy Act (BSA) and its implementing regulations.
• Independent Testing:
  • Conduct independent testing of the AML program at least annually to assess its effectiveness.
• Designated AML Compliance Officer:
  • Appoint a qualified individual responsible for overseeing AML compliance.
• Ongoing Training:
  • Provide ongoing training for appropriate personnel to ensure awareness of AML responsibilities.
• Suspicious Activity Reporting (SAR):
  • Establish procedures for detecting and reporting suspicious transactions to the Financial Crimes Enforcement Network (FinCEN).

Relevant FINRA Rule:

• FINRA Rule 3310 – Anti-Money Laundering Compliance Program: Sets forth minimum standards for AML compliance programs, including the requirements mentioned above. FINRA

Additional Considerations

• Recordkeeping:
  • Maintain comprehensive records of all customer information, transaction reports, and compliance efforts as required by FINRA and the BSA.
• Risk-Based Approach:
  • Implement a risk-based approach to AML compliance, allocating resources commensurate with the level of risk identified.
• Regulatory Updates:
  • Stay informed about updates to FINRA rules and federal regulations to ensure ongoing compliance.

By adhering to this checklist and the associated FINRA rules, your firm can establish robust KYC, KYB, and AML workflows that not only comply with regulatory requirements but also protect against financial crimes and enhance overall operational integrity.