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Question

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

A broker-dealer's compliance department is reviewing its written supervisory procedures regarding Customer Identification Programs (CIP), sanctions compliance, and anti-money laundering (AML) reporting obligations. Which of the following statements accurately describe regulatory requirements under FINRA and federal rules? (Select ALL that apply)

  1. Under CIP rules, broker-dealers must retain records of customer verification information for at least five years after the customer's account is closed.Answer
  2. Broker-dealers must screen new and existing customer accounts against the Office of Foreign Assets Control (OFAC) Specially Designated Nationals (SDN) list to block or restrict accounts of sanctioned individuals and entities.Answer
  3. C
    A Suspicious Activity Report (SAR) must be filed with FinCEN within 15 calendar days of identifying any single cash or wire transaction exceeding $10,000.
  4. D
    Upon filing a Suspicious Activity Report (SAR) regarding an account, the broker-dealer must send written notification to the account owner within 5 business days outlining the reported activity.

Answer

The correct statements are that CIP customer verification records must be retained for at least five years after an account is closed, and broker-dealers must screen customer accounts against the OFAC Specially Designated Nationals (SDN) list.
The statements regarding CIP five-year post-closure record retention and mandatory OFAC SDN list screening are accurate under federal securities regulations. CIP rules specifically require keeping verification records for five years following account termination. OFAC rules require broker-dealers to screen accounts against sanctions lists to block transactions with blocked entities.

Step-by-Step Solution

1
Evaluate CIP Recordkeeping Requirements
Confirm that CIP records (identifying information, verification documents/methods used) must be kept for 5 years post account closure.
Federal regulation under the USA PATRIOT Act requires member firms to maintain CIP verification data for 5 years after the relationship ends.
2
Evaluate OFAC Sanctions Screening Obligations
Confirm that screening accounts against OFAC SDN lists is mandatory for federal sanctions compliance.
U.S. financial institutions must block or freeze assets of individuals/entities on the SDN list.
3
Distinguish SAR vs. CTR Thresholds and Filing Deadlines
Identify that SARs apply to suspicious transactions of 5,000ormorewitha30−calendar−dayfilingdeadline,whileCTRsapplytocashtransactionsexceeding5,000 or more with a 30-calendar-day filing deadline, while CTRs apply to cash transactions exceeding 10,000 with a 15-calendar-day deadline.
Confusing SAR and CTR thresholds is a common regulatory calculation error.
4
Assess Confidentiality Rules for SAR Filings
Confirm that notifying the customer about a SAR filing is illegal.
Unauthorized disclosure of a SAR to the subject violates federal anti-money laundering confidentiality statutes.

Key Concept

CIP Recordkeeping, OFAC Sanctions Screening, and SAR/CTR Reporting Rules
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Topics

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