Anti-Money Laundering Rules Affecting Futures Commission Merchants

FIA/SIA Letters to the Financial Crimes Enforcement Network regarding the Final Rule for Section 312 of the USA Patriot Act.

  • Rule 312 Comment Letter Mar. 06, 2006
  • Rule 312 Comment Letter Mar. 03, 2006
  • Rule 312 Comment Letter Feb. 23, 2006
    Federal Register, March 30, 2006: http://www.fincen.gov/71fr16040_1506_aa29.pdf

    Anti-Money Laundering: Regulators Post Guidance on CIP Rule
    The Commodity Futures Trading Commission and the Treasury Department have issued interpretative guidance regarding the requirements that all futures commission merchants and introducing brokers establish customer identification programs. The eight-page guidance is organized as a series of questions and answers, and addresses such issues as whether pension plan administrators should be defined as customers for the purposes of these requirements, the scope of the existing account exclusion, and valid forms of identification.
    http://www.cftc.gov/files/cftc/cftcamlanswers.pdf
    http://www.nfa.futures.org/compliance/CustomerID_QandA.pdf

    Anti-Money Laundering: FIA Asks CFTC for No-Action Letter on Customer Identification
    The FIA on May 5 submitted a request to the Commodity Futures Trading Commission for a no-action letter confirming that futures commission merchants and introducing brokers may rely on commodity trading advisors and investment advisors who are exempt from registering as CTAs to perform elements of their customer identification program. FCMs generally are allowed to rely on other financial institutions to obtain customer information required by the agency’s anti-money laundering rules, but those other firms must be subject to anti-money laundering rules as well. Although the Treasury Department is drafting AML rules for CTAs, they are not yet finalized, and therefore firms cannot rely on CTAs to obtain the necessary customer information without confirmation from the CFTC that they will not be subject to an enforcement action. The FIA letter noted that the Securities and Exchange Commission has issued a comparable no-action letter with respect to investment advisors registered with the SEC.

    SAR Reporting Requirements and AML Update -- 4/9/2004 thru 5/18/2004
    Important: Please read carefully the following NFA anti-money laundering compliance notice reminding all FCMs and IB's that they are required to file suspicious activity reports (SARs) for all transactions occurring after May 18, 2004.

    NFA:
    Regulatory Reminder for FCMs and IBs on Suspicious Activity Reporting and Other BSA Requirements
    http://www.nfa.futures.org/compliance/051204.asp

    TREASURY:
    Treasury: Proposed Rules
    Currency and foreign transactions; financial reporting and recordkeeping requirements: Bank Secrecy Act; implementation--Commercial Bank of Syria and Subsidiary, special measure impositions as primary money laundering concern financial institution
    http://a257.g.akamaitech.net/7/257/2422/14mar20010800/edocket.access.gpo.gov/2004/pdf/04-11102.pdf

    Treasury Designates Commercial Bank of Syria as Financial Institution of Primary Money Laundering Concern
    http://www.treasury.gov/press/releases/js1538.htm

    Treasury Designates Bosnian Charities Funneling Dollars to Al Qaida
    http://www.treasury.gov/press/releases/js1527.htm

    U.S. Announces Easing and Lifting of Sanctions Against Libya Treasury to Issue General License Lifting Much of Economic Embargo
    http://www.treasury.gov/press/releases/js1457.htm

    FinCEN:
    Registration of Money Services Business -- Accompanied by FinCEN Form 107, Registration of Money Services Business
    http://www.fincen.gov/04-10549.pdf

    Enforcement Action in the Matter of Riggs Bank
    http://www.fincen.gov/riggsassessment3.pdf

    FinCEN Assesses $25 million Civil Money Penalty Against Riggs Bank N.A.
    http://www.fincen.gov/riggs6.pdf

    SAR Activity Review: By the Numbers
    http://www.fincen.gov/bythenumbersissue2.pdf

    Imposition of Special Measures Against Burma
    http://www.fincen.gov/burma.pdf

    Imposition of Special Measures Against Myanmar Mayflower Bank and Asia Wealth Bank
    http://www.fincen.gov/mayflowerbank.pdf

    Proposed Changes to CMIR Form to Streamline Reporting Process, Enhance Information for Law Enforcement
    http://www.fincen.gov/nr_cmirchanges4-9-04.pdf

    FEDERAL RESERVE:
    Consent order to cease and desist against Riggs National Corp. and Riggs International Banking Corp.
    http://www.federalreserve.gov/boarddocs/press/enforcement/2004/20040514/default.htm

    Anti-Money Laundering: FSA Hits Bank of Scotland with Huge Fine
    January 21, 2004 -- The Financial Services Authority, the U.K.’s primary financial regulator, has ordered Bank of Scotland plc to pay a fine of £1.25 million ($2.3 million) for failing to keep proper records of customer identification, as required by the FSA’s anti-money laundering rules. The FSA said in a statement issued on Jan. 15 that the size of the fine demonstrated that "failure by firms to put in place and maintain effective systems and controls will be dealt with severely." The FSA’s investigation found that in over half of the sample of accounts tested in late 2002, Bank of Scotland had failed to retain either a copy of the customer identification evidence or a record of where this evidence could be obtained. The Bank of Scotland is part of the HBOS Group, the U.K.’s fourth largest bank. Last December the FSA imposed an even larger fine on mortgage bank Abbey for similar money laundering breaches.
    ­http://www.fsa.gov.uk/pubs/press/2004/001.html­

    Anti-Money Laundering: New Guidance on Verifying Customer Identities
    January 21, 2004 -- The Treasury Department and the federal banking agencies have jointly released interpretive guidance on a number of frequently asked questions regarding the new customer identification requirements mandated by the Patriot Act. Most of the questions and answers relate to lending and other banking activities. The guidance clarifies that banks must verify the identity of new customers even if those persons already have relationships with an affiliate, and adds that banks may rely on affiliates to perform elements of their customer identification programs. The FIA has asked the Commodity Futures Trading Commission to provide similar guidance for futures commission merchants and other institutions in the futures industry.
    http://www.fincen.gov/finalciprule.pdf
    http://www.futuresindustry.org/downloads/regulatory/7-23-03.doc

    Anti-Money Laundering: Final Rule Issued for Reporting Suspicious Activity

    The U.S. Treasury Department has issued a final regulation requiring futures commission merchants and introducing brokers to file reports with the Financial Crimes Enforcement Network when they detect suspicious activity. This requirement applies to transactions in funds or assets of at least $5,000. The procedures for monitoring suspicious activity and filing must now be incorporated in the firm's written anti-money laundering compliance program. Failure to file or a late filing of a suspicious activity report is subject to civil money and criminal penalties. The effective date of the rule is Dec. 22 and the applicability date is May 18, 2004.

    A committee of FIA Law and Compliance Division chaired by Bill McCoy of Morgan Stanley has been working with Treasury and the CFTC to express the FIA's views in the drafting process and to garner further guidance on open issues related to anti-money laundering compliance requirements. On July 9, the FIA filed a comment letter supporting the proposed SAR rules but requesting clarification in certain areas. The letter (see link below) asked Treasury how the rules would apply in certain situations, such as with futures commission merchants that are also registered as broker-dealers. The FIA also suggested that executing and clearing brokers involved in "give-ups" with the same customer should be required to file only one suspicious activity report and urged Treasury to allow the sharing of information about suspicious activity between U.S. FCMs and foreign brokers and between U.S. FCMs and CTAs where they share the same customers.

    The final rule clarifies that an FCM/BD can file a single SAR report to either an appropriate securities or futures regulator or SRO. When two FCMs are involved in a transaction with the same customer, such as in a "give-up" arrangement, either firm filing a SAR report can satisfy the obligation of both FCMs to file. Treasury will be issuing guidance on how financial institutions can file joint SARs in the appropriate circumstances. On the issue of sharing information with entities that are not "financial institutions" under the Bank Secrecy Act, such as CTAs and foreign brokers, Treasury noted that because foreign entities are not "financial institutions" they are not eligible for protections under the Bank Secrecy Act.

    In addition, the FIA has been seeking clarification with respect to another important area of AML compliance--the customer identification requirements. On July 22, FIA sent a letter (see link below) requesting clarification on these rules. Treasury has not yet issued any guidance on this matter.
    http://www.fincen.gov/fcmfinalrule.pdf

    http://www.fincen.gov/fedregister_fcmfinalrule.pdf

    http://www.futuresindustry.org/amlrules-2398.asp

    Anti-Money Laundering: FIA Asks for Clarification on Customer Identification Rules

    The FIA on July 22 sent a letter to the CFTC requesting clarification on several issues raised by the final rules implementing section 326 of the USA Patriot Act. Industry groups were encouraged to submit questions and proposed answers to issues raised by the final rules. The Treasury Department is expected to gather issues and publish guidance in areas where many industries express common concerns. FIA raised questions concerning when a customer can be said to open a "new account" therefore requiring that customer identification procedures be undertaken, when an FCM and IB can rely upon another financial institution including an affiliate to perform some of the CIP functions, when an FCM can rely on a foreign financial institution subject to similar anti-money laundering requirements to perform customer identification procedures, and identifying who is the executing broker’s customer in the case of a three party give-up arrangement. FIA offered that when the give-up arrangement is entered into with an account manager acting on behalf of the manager’s customers, the executing FCM’s customer for purposes of AML customer identification requirements would be the account manager, not the underlying customers. The carrying FCM would be responsible for verifying the identity of the underlying customers.
    http://www.futuresindustry.org/downloads/regulatory/7-23-03.doc

    Anti-Money Laundering: FIA Seeks Clarification on SAR Rules

    The FIA has asked the Treasury Department to clarify a proposed rule that will require futures commission merchants and introducing brokers to alert the government whenever they detect suspicious activity by their customers. In a comment letter filed on July 7, the FIA expressed support for the rule and asked Treasury to clarify it will apply in certain situations, such as with FCMs that are also registered as broker-dealers with securities regulators. The letter also suggested that executing and clearing brokers with the same customer should be required to file only one suspicious activity report, and urged Treasury to allow the sharing of information about suspicious activity between U.S. FCMs and foreign brokers and between U.S. FCMs and commodity trading advisors, where both sides share the same customers.
    http://www.futuresindustry.org/downloads/cl/7-7-03.doc

    March 6, 2003

    To help guide the Treasury Department as it develops anti-money laundering rules and regulations for futures commission merchants, the FIA submitted a letter on March 6 describing certain characteristics of the futures industry that should be considered in the rule-making process. For example, many futures transactions are executed and cleared on behalf of intermediaries, such as other brokers and collective investment vehicles. In such circumstances, the letter said, FCMs should be allowed to rely on these intermediaries to identify customers and verify that they are not engaged in suspicious activities. Treasury took this view when it issued proposed rules in July 2002, and the letter urged the agency to maintain this position, even when the intermediary is located outside the U.S.

    The letter went on to describe situations where both the FCM and the intermediary have a direct relationship with the underlying customer. Even in such situations, the FCM should be allowed to rely on the intermediary to identify customers, the letter said, since the introducing broker or advisor has a more direct relationship with the customer and is in a better position to verify their identity. “We understand that this approach…does not relieve an FCM of the obligation to verify the identity of its customers. It simply permits the FCM to rely on another party to perform this function when such reliance is reasonable,” the letter said.

    With respect to give-up arrangements, the letter suggested that the anti-money laundering obligation should fall on the carrying broker, rather than the executing broker, since the carrying broker has a more direct and more comprehensive relationship with the customer. The letter described in detail how give-up relationships work in both the domestic and cross-border context, and urged Treasury to apply this rationale in both contexts.
    http://www.futuresindustry.org/downloads/regulatory/3-7-03.doc

    10-4-2002: Proposed Suspicious Activity Reports by the Securities and Futures Industry (SAR-SF)
    »
    FIA Comment Letter

    9/6/2002: Section 326 Proposed Rule-Customer Identification
    »
    FIA Comment Letter

    4/3/2002: Special Information Sharing Procedures to Deter Money Laundering and Terrorist Activities Attention: Propose Rule - Special Information Sharing - Section 314
    » FIA Comment Letter

    3/1/2002: Re: Proposed Amendment to the Bank Secrecy Act Regulations - Requirements of Brokers or Dealers in Securities to Report Suspicious Transactions
    »
    FIA Comment Letter

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    FIA/SIFMA File Joint Comment Letter on Fincen SAR Proposals
    FIA and SIFMA filed a joint comment letter on rules proposed by the Treasury Department's Financial Crimes Enforcement Network regarding Suspicious Activity Reports. In the June 8 2009 joint letter, FIA and Sifma stressed the importance of firms being able to share these reports with all affiliates within the organiz ation regardless of whether foreign or domestic. In addition, FIA and SIFMA stressed the importance of permitting each organization to make its own assessment of how to maintain confidentiality among affiliates receiving those SARs rather than imposing an obligation to establish confidentiality agreements between affiliates.

     Click here for full .pdf version

    FIA Suggests Changes to Anti-Money Laundering Reporting Form
                The Futures Industry Association submitted a letter to the Financial Crimes Enforcement Network on Feb. 3, 2009 suggesting several changes to the form used by securities and futures firms to report suspicious activity. Among other things, the FIA said the form should be revised so that there is more space for information and recommended several specific changes to accommodate the international scope of the futures industry. FinCEN is the anti-money laundering arm of the U.S. Treasury Department.

    Click here to download the PDF Version

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