Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to FINRA Rule 3310 to Conform FINRA Rule 3310 to FinCEN's Final Rule on Customer Due Diligence Requirements for Financial Institutions, 20906-20909 [2018-09694]
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20906
Federal Register / Vol. 83, No. 89 / Tuesday, May 8, 2018 / Notices
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
sradovich on DSK3GMQ082PROD with NOTICES
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSEAmer–2018–16 on the subject
line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSEAmer–2018–16. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–NYSEAmer–2018–16, and
should be submitted on or before May
29, 2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.22
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–09763 Filed 5–7–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–83154; File No. SR–FINRA–
2018–016]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change Relating to FINRA Rule
3310 to Conform FINRA Rule 3310 to
FinCEN’s Final Rule on Customer Due
Diligence Requirements for Financial
Institutions
May 2, 2018.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on April 20,
2018, Financial Industry Regulatory
Authority, Inc. (‘‘FINRA’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I, II,
and III below, which Items have been
prepared by FINRA. FINRA has
designated the proposed rule change as
constituting a ‘‘non-controversial’’ rule
change under paragraph (f)(6) of Rule
19b–4 under the Act,3 which renders
the proposal effective upon receipt of
this filing by the Commission. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
FINRA is proposing to amend FINRA
Rule 3310 (Anti-Money Laundering
Compliance Program) to reflect the
Financial Crimes Enforcement
Network’s (‘‘FinCEN’’) adoption of a
final rule on Customer Due Diligence
Requirements for Financial Institutions
22 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 17 CFR 240.19b–4(f)(6).
1 15
as designated by the Commission. The Exchange
has satisfied this requirement.
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(‘‘CDD Rule’’). Specifically, the
proposed amendments would conform
FINRA Rule 3310 to the CDD Rule’s
amendments to the minimum regulatory
requirements for member firms’ antimoney laundering (‘‘AML’’) compliance
programs by requiring such programs to
include risk-based procedures for
conducting ongoing customer due
diligence. This ongoing customer due
diligence element for AML programs
includes: (1) Understanding the nature
and purpose of customer relationships
for the purpose of developing a
customer risk profile; and (2)
conducting ongoing monitoring to
identify and report suspicious
transactions and, on a risk basis, to
maintain and update customer
information.
The text of the proposed rule change
is available on FINRA’s website at
https://www.finra.org, at the principal
office of FINRA and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
FINRA included statements concerning
the purpose of and basis for the
proposed rule change and discussed any
comments it received on the proposed
rule change. The text of these statements
may be examined at the places specified
in Item IV below. FINRA has prepared
summaries, set forth in sections A, B,
and C below, of the most significant
aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
a. Background
The Bank Secrecy Act 4 (‘‘BSA’’),
among other things, requires financial
institutions,5 including broker-dealers,
to develop and implement AML
programs that, at a minimum, meet the
statutorily enumerated ‘‘four pillars.’’ 6
These four pillars currently require
broker-dealers to have written AML
programs that include, at a minimum:
• The establishment and
implementation of policies, procedures
and internal controls reasonably
designed to achieve compliance with
the applicable provisions of the BSA
and implementing regulations;
4 31
U.S.C. 5311, et seq.
31 U.S.C. 5312(a)(2) (defining ‘‘financial
institution’’).
6 31 U.S.C. 5318(h)(1).
5 See
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Federal Register / Vol. 83, No. 89 / Tuesday, May 8, 2018 / Notices
• independent testing for compliance
by broker-dealer personnel or a
qualified outside party;
• designation of an individual or
individuals responsible for
implementing and monitoring the
operations and internal controls of the
AML program; and
• ongoing training for appropriate
persons.7
In addition to meeting the BSA’s
requirements with respect to AML
programs, broker-dealers must also
comply with FINRA Rule 3310, which
incorporates the BSA’s four pillars, as
well as requiring broker-dealers’ AML
programs to establish and implement
policies and procedures that can be
reasonably expected to detect and cause
the reporting of suspicious transactions.
On May 11, 2016, FinCEN, the bureau
of the Department of the Treasury
responsible for administering the BSA
and its implementing regulations,
issued the CDD Rule 8 to clarify and
strengthen customer due diligence for
covered financial institutions,9
including broker-dealers. In its CDD
Rule, FinCEN 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.10 As the first
component is already required to be part
of a broker-dealer’s AML program under
the BSA, the CDD Rule focuses on the
other three components.
Specifically, the CDD Rule focuses
particularly on the second component
by adding a new requirement that
covered financial institutions identify
and verify the identity of the beneficial
owners of all legal entity customers at
the time a new account is opened,
subject to certain exclusions and
7 31
CFR 1023.210(b).
Customer Due Diligence Requirements
for Financial Institutions; CDD Rule, 81 FR 29397
(May 11, 2016) (CDD Rule Release); 82 FR 45182
(September 28, 2017) (making technical correcting
amendments to the final CDD Rule published on
May 11, 2016). FinCEN is authorized to impose
AML program requirements on financial
institutions and to require financial institutions to
maintain procedures to ensure compliance with the
BSA and associated regulations. 31 U.S.C.
5318(h)(2) and (a)(2). The CDD Rule is the result of
the rulemaking process FinCEN initiated in March
2012. See 77 FR 13046 (March 5, 2012) (Advance
Notice of Proposed Rulemaking) and 79 FR 45151
(Aug. 4, 2014) (Notice of Proposed Rulemaking).
9 See 31 CFR 1010.230(f) (defining ‘‘covered
financial institution’’).
10 See CDD Rule Release at 29398.
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8 FinCEN
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exemptions.11 The CDD Rule also
addresses the third and fourth
components, which FinCEN states ‘‘are
already implicitly required for covered
financial institutions to comply with
their suspicious activity reporting
requirements,’’ by amending the
existing AML program rules for covered
financial institutions to explicitly
require these components to be
included in AML programs as a new
‘‘fifth pillar.’’ As a result of the CDD
Rule, member firms should ensure that
their AML programs are updated, as
necessary, to comply with the CDD Rule
by May 11, 2018.
On November 21, 2017, FINRA
published Regulatory Notice 17–40 to
provide guidance to member firms
regarding their obligations under FINRA
Rule 3310 in light of the adoption of
FinCEN’s CDD Rule. In addition, the
Notice summarized the CDD Rule’s
impact on member firms, including the
addition of the new fifth pillar required
for member firms’ AML programs. This
proposed rule change amends FINRA
Rule 3310 to incorporate the fifth pillar.
b. FINRA Rule 3310 and Amendment to
Minimum Requirements for Member
Firms’ AML Programs
Section 352 of the USA PATRIOT Act
of 2001 12 amended the BSA to require
broker-dealers to develop and
implement AML programs that include
the four pillars mentioned above.
Consistent with Section 352 of the
PATRIOT Act, and incorporating the
four pillars, FINRA Rule 3310 requires
each member firm to develop and
implement a written AML program
reasonably designed to achieve and
monitor the member firm’s compliance
with the BSA and implementing
regulations. Among other requirements,
FINRA Rule 3310 requires that each
member firm, at a minimum: (1)
Establish and implement policies and
procedures that can be reasonably
expected to detect and cause the
reporting of suspicious transactions; (2)
establish and implement policies,
procedures, and internal controls
reasonably designed to achieve
compliance with the BSA and
implementing regulations; (3) provide
for annual (on a calendar-year basis)
independent testing for compliance to
be conducted by member firm personnel
11 See 31 CFR 1010.230(d) (defining ‘‘beneficial
owner’’) and 31 CFR 1010.230(e) (defining ‘‘legal
entity customer’’).
12 Uniting and Strengthening America by
Providing Appropriate Tools Required to Intercept
and Obstruct Terrorism Act of 2001, Public Law
107–56, 115 Stat. 272 (2001).
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20907
or a qualified outside party; 13 (4)
designate and identify to FINRA an
individual or individuals (i.e., AML
compliance person(s)) who will be
responsible for implementing and
monitoring the day-to-day operations
and internal controls of the AML
program and provide prompt
notification to FINRA of any changes to
the designation; and (5) provide ongoing
training for appropriate persons.
FinCEN’s CDD Rule does not change
the requirements of FINRA Rule 3310
and member firms must continue to
comply with its requirements.14
However, FinCEN’s CDD Rule amends
the minimum regulatory requirements
for member firms’ AML programs by
explicitly requiring such programs to
include risk-based procedures for
conducting ongoing customer due
diligence.15 Accordingly, FINRA is
proposing to amend FINRA Rule 3310 to
incorporate into the Rule this ongoing
customer due diligence element, or
‘‘fifth pillar’’ required for AML
programs. Thus, proposed Rule 3310(f)
would provide that the AML programs
required by this Rule shall, at a
minimum include appropriate riskbased procedures for conducting
ongoing customer due diligence, to
include, but not be limited to: (1)
Understanding the nature and purpose
of customer relationships for the
purpose of developing a customer risk
profile; and (2) Conducting ongoing
monitoring to identify and report
suspicious transactions and, on a risk
basis, to maintain and update customer
information.
As stated in the CDD Rule, these
provisions are not new and merely
codify existing expectations for firms to
adequately identify and report
suspicious transactions as required
under the BSA and encapsulate
practices generally already undertaken
by securities firms to know and
understand their customers.16 The
proposed rule change simply
incorporates into FINRA Rule 3310 the
ongoing customer due diligence
13 If a member firm does not execute transactions
for customers or otherwise hold customer accounts
or act as an introducing broker with respect to
customer accounts (e.g., engages solely in
proprietary trading or conducts business only with
other broker-dealers), then ‘‘independent testing’’ is
required every two years. See FINRA Rule 3310(c).
However, a member should conduct more frequent
testing than required if circumstances warrant. See
Supplementary Material .01(a).
14 In fact, FinCEN notes that broker-dealers must
continue to comply with FINRA Rules,
notwithstanding differences between the CDD Rule
and FINRA Rule 3310. See CDD Rule Release
29421, n. 85.
15 See CDD Rule Release at 29420; 31 CFR
1023.210.
16 See id. at 29419.
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Federal Register / Vol. 83, No. 89 / Tuesday, May 8, 2018 / Notices
element, or ‘‘fifth pillar,’’ required for
AML programs by the CDD Rule to aid
member firms in complying with the
CDD Rule’s requirements. However, to
the extent that these elements, which
are briefly summarized below, are not
already included in member firms’ AML
programs, the CDD Rule requires
member firms to update their AML
programs to explicitly incorporate them.
sradovich on DSK3GMQ082PROD with NOTICES
c. Summary of Fifth Pillar’s
Requirements
Understanding the Nature and Purpose
of Customer Relationships
FinCEN states in the CDD Rule that
firms must necessarily have an
understanding of the nature and
purpose of the customer relationship in
order to determine whether a
transaction is potentially suspicious
and, in turn, to fulfill their SAR
obligations.17 To that end, the CDD Rule
requires that firms understand the
nature and purpose of the customer
relationship in order to develop a
customer risk profile. The customer risk
profile refers to information gathered
about a customer to form the baseline
against which customer activity is
assessed for suspicious transaction
reporting.18 Information relevant to
understanding the nature and purpose
of the customer relationship may be
self-evident and, depending on the facts
and circumstances, may include such
information as the type of customer,
account or service offered, and the
customer’s income, net worth, domicile,
or principal occupation or business, as
well as, in the case of existing
customers, the customer’s history of
activity.19 The CDD Rule also does not
prescribe a particular form of the
customer risk profile.20 Instead, the CDD
Rule states that depending on the firm
and the nature of its business, a
customer risk profile may consist of
individualized risk scoring, placement
of customers into risk categories or
another means of assessing customer
risk that allows firms to understand the
risk posed by the customer and to
demonstrate that understanding.21
The CDD Rule also addresses the
interplay of understanding the nature
and purpose of customer relationships
with the ongoing monitoring obligation
discussed below. The CDD Rule
explains that firms are not necessarily
required or expected to integrate
customer information or the customer
risk profile into existing transaction
17 See
id. at 29421.
id. at 29422.
19 See id.
20 See id.
21 See id.
18 See
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monitoring systems (for example, to
serve as the baseline for identifying and
assessing suspicious transactions on a
contemporaneous basis).22 Rather,
FinCEN expects firms to use the
customer information and customer risk
profile as appropriate during the course
of complying with their obligations
under the BSA in order to determine
whether a particular flagged transaction
is suspicious.23
Conducting Ongoing Monitoring
As with the requirement to
understand the nature and purpose of
the customer relationship, the
requirement to conduct ongoing
monitoring to identify and report
suspicious transactions and, on a risk
basis, to maintain and update customer
information, merely adopts existing
supervisory and regulatory expectations
as explicit minimum standards of
customer due diligence required for
firms’ AML programs.24 If, in the course
of its normal monitoring for suspicious
activity, the member firm detects
information that is relevant to assessing
the customer’s risk profile, the member
firm must update the customer
information, including the information
regarding the beneficial owners of legal
entity customers.25 However, there is no
expectation that the member firm
update customer information, including
beneficial ownership information, on an
ongoing or continuous basis.26
FINRA has filed the proposed rule
change for immediate effectiveness. The
implementation date for the proposed
changes will be May 11, 2018 to
coincide with the compliance date
under the CDD Rule.
2. Statutory Basis
FINRA believes that the proposed rule
change is consistent with the provisions
of Section 15A(b)(6) of the Act,27 which
requires, among other things, that
FINRA rules must be designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, and, in
general, to protect investors and the
public interest. FINRA believes the
proposed rule change will aid member
firms in complying with the CDD Rule’s
requirement that member firms’ AML
programs include risk-based procedures
for conducting ongoing customer due
22 See
id.
id.
24 See id. at 29402.
25 See id. at 29420–21. See also Regulatory Notice
17–40 (discussing identifying and verifying the
identity of beneficial owners of legal entity
customers).
26 See id.
27 15 U.S.C. 78o–3(b)(6).
23 See
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diligence by also incorporating the
requirement into FINRA Rule 3310.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
FINRA does not believe that the
proposed rule change will result in any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
proposed rule change simply
incorporates into FINRA Rule 3310 the
ongoing customer due diligence
element, or ‘‘fifth pillar,’’ required for
AML programs by the CDD Rule.
Regardless of the proposed rule change,
to the extent that the elements of the
fifth pillar are not already included in
member firms’ AML programs, the CDD
Rule requires member firms to update
their AML programs to explicitly
incorporate them by May 11, 2018. In
addition, as stated in the CDD Rule,
these elements are already implicitly
required for covered financial
institutions to comply with their
suspicious activity reporting
requirements. FINRA is not imposing
any additional direct or indirect
burdens on member firms or their
clients through this proposal, and as
such the proposal imposes no new
burdens on competition.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 28 and Rule 19b–
4(f)(6) thereunder.29
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
28 15
29 17
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U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6).
08MYN1
Federal Register / Vol. 83, No. 89 / Tuesday, May 8, 2018 / Notices
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
FINRA 2018–016 on the subject line.
Paper Comments
sradovich on DSK3GMQ082PROD with NOTICES
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–FINRA–2018–016. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such
filing also will be available for
inspection and copying at the principal
office of FINRA. All comments received
will be posted without change. Persons
submitting comments are cautioned that
we do not redact or edit personal
identifying information from comment
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–FINRA–
2018–016 and should be submitted on
or before May 29, 2018.
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20909
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.30
Eduardo A. Aleman,
Assistant Secretary.
of the agenda in writing may send their
comments to: TVA Board of Directors,
Board Agenda Comments, 400 West
Summit Hill Drive, Knoxville,
Tennessee 37902.
[FR Doc. 2018–09694 Filed 5–7–18; 8:45 am]
Dated: May 3, 2018.
Sherry A. Quirk,
General Counsel.
BILLING CODE 8011–01–P
TENNESSEE VALLEY AUTHORITY
[FR Doc. 2018–09845 Filed 5–4–18; 11:15 am]
BILLING CODE 8120–08–P
Sunshine Act Meeting Notice
Meeting No. 18–02
The TVA Board of Directors will hold
a public meeting on May 10, 2018, at the
Shoals Marriott and Conference Center,
10 Hightower Place, Florence, Alabama.
The public may comment on any agenda
item or subject at a public listening
session which begins at 9:30 a.m. (CT).
Following the end of the public
listening session, the meeting will be
called to order to consider the agenda
items listed below. On-site registration
will be available until 15 minutes before
the public listening session begins at
9:30 a.m. (CT). TVA management will
answer questions from the news media
following the Board meeting.
STATUS: Open.
Agenda
Chair’s Welcome
Old Business
Approval of minutes of the February 16,
2018, Board Meeting
New Business
1. Report From President and CEO
2. Governance Item
A. Assistant Corporate Secretaries
3. Report of the Audit, Risk, and
Regulation Committee
4. Report of the People and Performance
Committee
5. Report of the Finance, Rates, and
Portfolio Committee
A. Rate Change
B. Optional Electric Vehicle Rate Pilot
C. Tennessee Gas Pipeline
Agreements and Delegation
D. Texas Gas Transmission
Agreements
6. Report of the External Relations
Committee
A. Modified Land and Equipment
Conveyance Delegations
7. Report of the Nuclear Oversight
Committee
FOR MORE INFORMATION: Please call TVA
Media Relations at (865) 632–6000,
Knoxville, Tennessee. People who plan
to attend the meeting and have special
needs should call (865) 632–6000.
Anyone who wishes to comment on any
30 17
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CFR 200.30–3(a)(12).
Frm 00123
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DEPARTMENT OF TRANSPORTATION
Federal Highway Administration
Notice of Final Federal Agency Actions
on Interstate 95 in the City of
Fredericksburg and the Counties of
Spotsylvania, Stafford, Prince William,
and Fairfax, Virginia
Federal Highway
Administration (FHWA), DOT
ACTION: Notice of Limitation on Claims
for Judicial Review of Actions by
FHWA.
AGENCY:
This notice announces actions
taken by the FHWA that are final. The
actions relate to roadway improvements
to enhance Express Lane access at the I–
95/Russell Road Interchange (Exit 148),
as well as expand the Express Lanes
approximately ten miles from near the
I–95/VA 610 Interchange at
Garrisonville Road (Exit 143) to near the
I–95/US 17 Interchange at Warrenton
Road (Exit 133), in the City of
Fredericksburg and the Counties of
Spotsylvania, Stafford, Prince William,
and Fairfax.
DATES: By this notice, the FHWA is
advising the public of final agency
actions subject to 23 U.S.C. 139(l)(1). A
claim seeking judicial review of the
Federal agency actions on the project
will be barred unless the claim is filed
on or before October 5, 2018.
Notwithstanding any other provision of
law, a claim arising under Federal law
seeking judicial review of a permit,
license, or approval issued by a Federal
agency for a highway or public
transportation capital project shall be
barred unless it is filed within 150 days
after publication of a notice in the
Federal Register announcing that the
permit, license, or approval is final
pursuant to the law under which the
agency action is taken, unless a shorter
time is specified in the Federal law
pursuant to which judicial review is
allowed.
FOR FURTHER INFORMATION CONTACT: For
FHWA: Mr. Mack Frost, Planning and
Environmental Specialist, Federal
Highway Administration, 400 North 8th
SUMMARY:
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]]>Agencies
[Federal Register Volume 83, Number 89 (Tuesday, May 8, 2018)]
[Notices]
[Pages 20906-20909]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-09694]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-83154; File No. SR-FINRA-2018-016]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change Relating to FINRA Rule 3310 to Conform FINRA Rule
3310 to FinCEN's Final Rule on Customer Due Diligence Requirements for
Financial Institutions
May 2, 2018.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on April 20, 2018, Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission'') the proposed rule change as described in Items I,
II, and III below, which Items have been prepared by FINRA. FINRA has
designated the proposed rule change as constituting a ``non-
controversial'' rule change under paragraph (f)(6) of Rule 19b-4 under
the Act,\3\ which renders the proposal effective upon receipt of this
filing by the Commission. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to amend FINRA Rule 3310 (Anti-Money Laundering
Compliance Program) to reflect the Financial Crimes Enforcement
Network's (``FinCEN'') adoption of a final rule on Customer Due
Diligence Requirements for Financial Institutions (``CDD Rule'').
Specifically, the proposed amendments would conform FINRA Rule 3310 to
the CDD Rule's amendments to the minimum regulatory requirements for
member firms' anti-money laundering (``AML'') compliance programs by
requiring such programs to include risk-based procedures for conducting
ongoing customer due diligence. This ongoing customer due diligence
element for AML programs includes: (1) Understanding the nature and
purpose of customer relationships for the purpose of developing a
customer risk profile; and (2) conducting ongoing monitoring to
identify and report suspicious transactions and, on a risk basis, to
maintain and update customer information.
The text of the proposed rule change is available on FINRA's
website at https://www.finra.org, at the principal office of FINRA and
at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, FINRA included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. FINRA has prepared summaries, set forth in sections A,
B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
a. Background
The Bank Secrecy Act \4\ (``BSA''), among other things, requires
financial institutions,\5\ including broker-dealers, to develop and
implement AML programs that, at a minimum, meet the statutorily
enumerated ``four pillars.'' \6\ These four pillars currently require
broker-dealers to have written AML programs that include, at a minimum:
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\4\ 31 U.S.C. 5311, et seq.
\5\ See 31 U.S.C. 5312(a)(2) (defining ``financial
institution'').
\6\ 31 U.S.C. 5318(h)(1).
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The establishment and implementation of policies,
procedures and internal controls reasonably designed to achieve
compliance with the applicable provisions of the BSA and implementing
regulations;
[[Page 20907]]
independent testing for compliance by broker-dealer
personnel or a qualified outside party;
designation of an individual or individuals responsible
for implementing and monitoring the operations and internal controls of
the AML program; and
ongoing training for appropriate persons.\7\
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\7\ 31 CFR 1023.210(b).
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In addition to meeting the BSA's requirements with respect to AML
programs, broker-dealers must also comply with FINRA Rule 3310, which
incorporates the BSA's four pillars, as well as requiring broker-
dealers' AML programs to establish and implement policies and
procedures that can be reasonably expected to detect and cause the
reporting of suspicious transactions.
On May 11, 2016, FinCEN, the bureau of the Department of the
Treasury responsible for administering the BSA and its implementing
regulations, issued the CDD Rule \8\ to clarify and strengthen customer
due diligence for covered financial institutions,\9\ including broker-
dealers. In its CDD Rule, FinCEN 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.\10\ As the first
component is already required to be part of a broker-dealer's AML
program under the BSA, the CDD Rule focuses on the other three
components.
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\8\ FinCEN Customer Due Diligence Requirements for Financial
Institutions; CDD Rule, 81 FR 29397 (May 11, 2016) (CDD Rule
Release); 82 FR 45182 (September 28, 2017) (making technical
correcting amendments to the final CDD Rule published on May 11,
2016). FinCEN is authorized to impose AML program requirements on
financial institutions and to require financial institutions to
maintain procedures to ensure compliance with the BSA and associated
regulations. 31 U.S.C. 5318(h)(2) and (a)(2). The CDD Rule is the
result of the rulemaking process FinCEN initiated in March 2012. See
77 FR 13046 (March 5, 2012) (Advance Notice of Proposed Rulemaking)
and 79 FR 45151 (Aug. 4, 2014) (Notice of Proposed Rulemaking).
\9\ See 31 CFR 1010.230(f) (defining ``covered financial
institution'').
\10\ See CDD Rule Release at 29398.
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Specifically, the CDD Rule focuses particularly on the second
component by adding a new requirement that covered financial
institutions identify and verify the identity of the beneficial owners
of all legal entity customers at the time a new account is opened,
subject to certain exclusions and exemptions.\11\ The CDD Rule also
addresses the third and fourth components, which FinCEN states ``are
already implicitly required for covered financial institutions to
comply with their suspicious activity reporting requirements,'' by
amending the existing AML program rules for covered financial
institutions to explicitly require these components to be included in
AML programs as a new ``fifth pillar.'' As a result of the CDD Rule,
member firms should ensure that their AML programs are updated, as
necessary, to comply with the CDD Rule by May 11, 2018.
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\11\ See 31 CFR 1010.230(d) (defining ``beneficial owner'') and
31 CFR 1010.230(e) (defining ``legal entity customer'').
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On November 21, 2017, FINRA published Regulatory Notice 17-40 to
provide guidance to member firms regarding their obligations under
FINRA Rule 3310 in light of the adoption of FinCEN's CDD Rule. In
addition, the Notice summarized the CDD Rule's impact on member firms,
including the addition of the new fifth pillar required for member
firms' AML programs. This proposed rule change amends FINRA Rule 3310
to incorporate the fifth pillar.
b. FINRA Rule 3310 and Amendment to Minimum Requirements for Member
Firms' AML Programs
Section 352 of the USA PATRIOT Act of 2001 \12\ amended the BSA to
require broker-dealers to develop and implement AML programs that
include the four pillars mentioned above. Consistent with Section 352
of the PATRIOT Act, and incorporating the four pillars, FINRA Rule 3310
requires each member firm to develop and implement a written AML
program reasonably designed to achieve and monitor the member firm's
compliance with the BSA and implementing regulations. Among other
requirements, FINRA Rule 3310 requires that each member firm, at a
minimum: (1) Establish and implement policies and procedures that can
be reasonably expected to detect and cause the reporting of suspicious
transactions; (2) establish and implement policies, procedures, and
internal controls reasonably designed to achieve compliance with the
BSA and implementing regulations; (3) provide for annual (on a
calendar-year basis) independent testing for compliance to be conducted
by member firm personnel or a qualified outside party; \13\ (4)
designate and identify to FINRA an individual or individuals (i.e., AML
compliance person(s)) who will be responsible for implementing and
monitoring the day-to-day operations and internal controls of the AML
program and provide prompt notification to FINRA of any changes to the
designation; and (5) provide ongoing training for appropriate persons.
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\12\ Uniting and Strengthening America by Providing Appropriate
Tools Required to Intercept and Obstruct Terrorism Act of 2001,
Public Law 107-56, 115 Stat. 272 (2001).
\13\ If a member firm does not execute transactions for
customers or otherwise hold customer accounts or act as an
introducing broker with respect to customer accounts (e.g., engages
solely in proprietary trading or conducts business only with other
broker-dealers), then ``independent testing'' is required every two
years. See FINRA Rule 3310(c). However, a member should conduct more
frequent testing than required if circumstances warrant. See
Supplementary Material .01(a).
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FinCEN's CDD Rule does not change the requirements of FINRA Rule
3310 and member firms must continue to comply with its
requirements.\14\ However, FinCEN's CDD Rule amends the minimum
regulatory requirements for member firms' AML programs by explicitly
requiring such programs to include risk-based procedures for conducting
ongoing customer due diligence.\15\ Accordingly, FINRA is proposing to
amend FINRA Rule 3310 to incorporate into the Rule this ongoing
customer due diligence element, or ``fifth pillar'' required for AML
programs. Thus, proposed Rule 3310(f) would provide that the AML
programs required by this Rule shall, at a minimum include appropriate
risk-based procedures for conducting ongoing customer due diligence, to
include, but not be limited to: (1) Understanding the nature and
purpose of customer relationships for the purpose of developing a
customer risk profile; and (2) Conducting ongoing monitoring to
identify and report suspicious transactions and, on a risk basis, to
maintain and update customer information.
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\14\ In fact, FinCEN notes that broker-dealers must continue to
comply with FINRA Rules, notwithstanding differences between the CDD
Rule and FINRA Rule 3310. See CDD Rule Release 29421, n. 85.
\15\ See CDD Rule Release at 29420; 31 CFR 1023.210.
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As stated in the CDD Rule, these provisions are not new and merely
codify existing expectations for firms to adequately identify and
report suspicious transactions as required under the BSA and
encapsulate practices generally already undertaken by securities firms
to know and understand their customers.\16\ The proposed rule change
simply incorporates into FINRA Rule 3310 the ongoing customer due
diligence
[[Page 20908]]
element, or ``fifth pillar,'' required for AML programs by the CDD Rule
to aid member firms in complying with the CDD Rule's requirements.
However, to the extent that these elements, which are briefly
summarized below, are not already included in member firms' AML
programs, the CDD Rule requires member firms to update their AML
programs to explicitly incorporate them.
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\16\ See id. at 29419.
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c. Summary of Fifth Pillar's Requirements
Understanding the Nature and Purpose of Customer Relationships
FinCEN states in the CDD Rule that firms must necessarily have an
understanding of the nature and purpose of the customer relationship in
order to determine whether a transaction is potentially suspicious and,
in turn, to fulfill their SAR obligations.\17\ To that end, the CDD
Rule requires that firms understand the nature and purpose of the
customer relationship in order to develop a customer risk profile. The
customer risk profile refers to information gathered about a customer
to form the baseline against which customer activity is assessed for
suspicious transaction reporting.\18\ Information relevant to
understanding the nature and purpose of the customer relationship may
be self-evident and, depending on the facts and circumstances, may
include such information as the type of customer, account or service
offered, and the customer's income, net worth, domicile, or principal
occupation or business, as well as, in the case of existing customers,
the customer's history of activity.\19\ The CDD Rule also does not
prescribe a particular form of the customer risk profile.\20\ Instead,
the CDD Rule states that depending on the firm and the nature of its
business, a customer risk profile may consist of individualized risk
scoring, placement of customers into risk categories or another means
of assessing customer risk that allows firms to understand the risk
posed by the customer and to demonstrate that understanding.\21\
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\17\ See id. at 29421.
\18\ See id. at 29422.
\19\ See id.
\20\ See id.
\21\ See id.
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The CDD Rule also addresses the interplay of understanding the
nature and purpose of customer relationships with the ongoing
monitoring obligation discussed below. The CDD Rule explains that firms
are not necessarily required or expected to integrate customer
information or the customer risk profile into existing transaction
monitoring systems (for example, to serve as the baseline for
identifying and assessing suspicious transactions on a contemporaneous
basis).\22\ Rather, FinCEN expects firms to use the customer
information and customer risk profile as appropriate during the course
of complying with their obligations under the BSA in order to determine
whether a particular flagged transaction is suspicious.\23\
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\22\ See id.
\23\ See id.
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Conducting Ongoing Monitoring
As with the requirement to understand the nature and purpose of the
customer relationship, the requirement to conduct ongoing monitoring to
identify and report suspicious transactions and, on a risk basis, to
maintain and update customer information, merely adopts existing
supervisory and regulatory expectations as explicit minimum standards
of customer due diligence required for firms' AML programs.\24\ If, in
the course of its normal monitoring for suspicious activity, the member
firm detects information that is relevant to assessing the customer's
risk profile, the member firm must update the customer information,
including the information regarding the beneficial owners of legal
entity customers.\25\ However, there is no expectation that the member
firm update customer information, including beneficial ownership
information, on an ongoing or continuous basis.\26\
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\24\ See id. at 29402.
\25\ See id. at 29420-21. See also Regulatory Notice 17-40
(discussing identifying and verifying the identity of beneficial
owners of legal entity customers).
\26\ See id.
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FINRA has filed the proposed rule change for immediate
effectiveness. The implementation date for the proposed changes will be
May 11, 2018 to coincide with the compliance date under the CDD Rule.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\27\ which requires, among
other things, that FINRA rules must be designed to prevent fraudulent
and manipulative acts and practices, to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest. FINRA believes the proposed rule change will aid
member firms in complying with the CDD Rule's requirement that member
firms' AML programs include risk-based procedures for conducting
ongoing customer due diligence by also incorporating the requirement
into FINRA Rule 3310.
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\27\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition
FINRA does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. The proposed rule change simply
incorporates into FINRA Rule 3310 the ongoing customer due diligence
element, or ``fifth pillar,'' required for AML programs by the CDD
Rule. Regardless of the proposed rule change, to the extent that the
elements of the fifth pillar are not already included in member firms'
AML programs, the CDD Rule requires member firms to update their AML
programs to explicitly incorporate them by May 11, 2018. In addition,
as stated in the CDD Rule, these elements are already implicitly
required for covered financial institutions to comply with their
suspicious activity reporting requirements. FINRA is not imposing any
additional direct or indirect burdens on member firms or their clients
through this proposal, and as such the proposal imposes no new burdens
on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \28\ and Rule 19b-
4(f)(6) thereunder.\29\
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\28\ 15 U.S.C. 78s(b)(3)(A).
\29\ 17 CFR 240.19b-4(f)(6).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings
[[Page 20909]]
to determine whether the proposed rule should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-FINRA 2018-016 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-FINRA-2018-016. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of such filing also will be available for inspection
and copying at the principal office of FINRA. All comments received
will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-FINRA-2018-016 and should be submitted
on or before May 29, 2018.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\30\
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\30\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-09694 Filed 5-7-18; 8:45 am]
BILLING CODE 8011-01-P
