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Question

Difficulty: MediumAnti-Money Laundering (AML), KYC, and Sanctions Compliance

A registered representative is opening a new retail account for an individual client at a broker-dealer. Under federal anti-money laundering (AML) regulations, FINRA rules, and Office of Foreign Assets Control (OFAC) requirements, which of the following procedures are mandatory for the member firm during account onboarding? (Select all that apply.)

  1. Verifying the customer's identity using documentary or non-documentary methods within a reasonable time frame before or after account openingAnswer
  2. Screening the customer's identity against the Specially Designated Nationals and Blocked Persons (SDN) list maintained by OFACAnswer
  3. C
    Filing a Currency Transaction Report (CTR) with FinCEN within 15 days whenever a customer deposits a single cashier's check exceeding $5,000
  4. D
    Filing a Suspicious Activity Report (SAR) within 30 calendar days for any currency transaction exceeding $10,000 regardless of whether suspicious activity is detected

Answer

The mandatory onboarding procedures are verifying customer identity under CIP rules and screening customer names against the OFAC Specially Designated Nationals list.
Verifying customer identity under CIP rules and screening against OFAC SDN sanctions lists are two standard mandatory onboarding obligations for broker-dealers when opening new customer accounts.

Step-by-Step Solution

1
Identify the mandatory requirements of the Customer Identification Program (CIP) under the USA PATRIOT Act and FINRA regulations.
Broker-dealers must collect basic customer information (name, address, date of birth, tax ID number) and verify identity using documents or reliable non-documentary sources within a reasonable timeframe.
Ensures the firm verifies the true identity of every individual opening an account.
2
Identify OFAC compliance obligations during account opening.
Broker-dealers must screen customer names against OFAC sanctions lists (such as the SDN list) to enforce U.S. foreign policy and national security sanctions.
U.S. financial institutions are prohibited from doing business with blocked persons, terrorists, or sanctioned entities.
3
Differentiate Currency Transaction Report (CTR) and Suspicious Activity Report (SAR) triggers.
CTRs apply to cash/currency transactions over 10,000inasingleday.SARsapplytosuspicioustransactionsinvolving10,000 in a single day. SARs apply to suspicious transactions involving 5,000 or more.
Routine checks or routine cash transactions over $10,000 do not automatically trigger a SAR unless suspicious behavior or structuring is identified.

Key Concept

Broker-dealer obligations for Customer Identification Programs (CIP) and OFAC sanctions screening versus BSA reporting thresholds (CTR vs SAR).
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Topics

Anti-Money Laundering (AML), KYC, and Sanctions Compliance