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SEC Risk Alert Highlights Observations from AML Compliance Exams

Ross Marlin
Ross Marlin
Director, Regulatory Services

On July 31, 2023, the U.S. Securities and Exchange Commission (“SEC”) Division of Examinations (“Division”) issued a risk alert presenting observations regarding broker-dealer anti-money laundering (“AML”) compliance program deficiencies (the “Risk Alert”). The Risk Alert highlighted issues relating to: (1) independent AML testing; (2) AML training; (3) customer identification program (“CIP”) compliance; (4) customer due diligence (“CDD”) and beneficial ownership identification and verification; and (5) Office of Foreign Assets Control (“OFAC”) compliance programs.

Specific observations included the following:


Division staff observed broker-dealers that: (1) did not complete AML tests in a timely manner; (2) had inadequate testing; and (3) had inadequate procedures to address testing.

AML Training

The Risk Alert noted: (1) training materials that were not appropriately updated and/or tailored; and (2) instances in which firms could not demonstrate that personnel attended required AML training.

Customer Identification Program

  • Collect customers’ dates of birth, identification numbers, or addresses, or permitted accounts to be opened by individuals providing only a P.O. box address;
  • Verify the identity of customers, including instances in which the firms’ files indicated that verification was complete but required information was missing, incomplete, or invalid;

Division staff observed broker-dealers whose CIP “appeared not to be properly designed to enable the firm to form a reasonable belief that it knows the true identity of customers.” For example, the staff observed firms that did not:

  • Follow their own CIP procedures; and
  • Follow any CIP procedures with respect to private placement investors, in cases “where customer relationships established with the [firm] to effect securities transactions appeared to be formal relationships for purposes of the CIP rule.”

CDD Rule

Division staff observed broker-dealers that had not updated their AML programs to reflect the CDD Rule, and also noted various specific deficiencies by certain broker-dealers related to compliance with the CDD Rule.

OFAC Compliance

The Division observed certain weaknesses in OFAC sanctions compliance efforts, including failure to (1) adequately follow-up on potential sanctions matches; (2) perform periodic or event-based OFAC screening of customers; and (3) conduct timely sanctions screening.

AML Compliance Exam Observations Risk Alert
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