On November 21, the Financial Industry Regulatory Authority issued Regulatory Notice 17-40, which provides member firms guidance as it relates to compliance with Rule 3310 in light of the Financial Crimes Enforcement Network’s (FinCEN) adoption of Customer Due Diligence Requirements (CDD Rule).
The CDD Rule identifies four components of customer due diligence: (1) customer identification and verification, (2) beneficial ownership identification and verification, (3) understanding the nature and purpose of customer relationships, and (4) ongoing monitoring for reporting suspicious transactions and, on a risk basis, maintaining and updating customer information. Through the second component, the CDD Rule adds a new requirement to identify and verify the beneficial owners of all legal entity customers at the time a new account is opened. The third and fourth components codify requirements that covered firms are already subject to as a result of their suspicious activity reporting requirements and require firms to adopt anti-money laundering programs that include risk-based procedures for conducting ongoing customer due diligence. This ongoing due diligence requires that member firms understand the nature and purpose of customer relationships for the purpose of developing customer risk profiles. In addition, if, in the course of normal monitoring for suspicious activity, the member firm detects information relevant to a customer’s risk profile, it must update its customer information.
The CDD Rule enhances anti-money laundering requirements already applicable to member firms pursuant to the Bank Secrecy Act and FINRA Rule 3310. The CDD Rule does not change the requirements of Rule 3310, with which member firms must still comply.
Member firms must comply with the CDD Rule by May 11, 2018. The Regulatory Notice is available here.