Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Options 9, Section 21 (Anti-Money Laundering Compliance Program), 12040-12043 [2020-04075]
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12040
Federal Register / Vol. 85, No. 40 / Friday, February 28, 2020 / Notices
public interest. Specifically, the
Exchange believes the proposed rule
change will protect investors, because it
will aid Members in complying with the
CDD Rule’s requirement that Members’
AML programs include risk-based
procedures for conducting ongoing
customer due diligence by also
incorporating the requirement into
Options 9, Section 21.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
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 Options 9, Section 21
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
Members’ AML programs, the CDD Rule
requires Members to update their AML
programs to explicitly incorporate them.
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. Further, all Exchange
Members that have customers are
required to be members of FINRA
pursuant to Rule 15b9–1 under the
Exchange Act,30 and are therefore
already subject to the requirements of
FINRA Rule 3310. Additionally, the
proposed rule change is virtually
identical 31 to FINRA Rule 3310. The
Exchange is not imposing any
additional direct or indirect burdens on
member firms or their customers
through this proposal, and as such, the
proposal imposes no new burdens on
competition.
jbell on DSKJLSW7X2PROD with NOTICES
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or 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
30 17
CFR 240.15b9–1.
Exchange notes that changes between the
proposed Rule and FINRA Rule 3310 are nonsubstantive and relate to cross references.
31 The
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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)(iii) of the Act 32 and
subparagraph (f)(6) of Rule 19b–4
thereunder.33
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
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–
GEMX–2020–06 on the subject line.
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–GEMX–2020–06 and
should be submitted on or before March
20, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.34
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–04074 Filed 2–27–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
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–GEMX–2020–06. 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
32 15
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
the proposed rule change at least five business days
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. The Exchange has satisfied this
requirement.
33 17
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[Release No. 34–88275; File No. SR–MRX–
2020–05]
Self-Regulatory Organizations; Nasdaq
MRX, LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend Options 9,
Section 21 (Anti-Money Laundering
Compliance Program)
February 24, 2020.
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 February
18, 2020, Nasdaq MRX, LLC (‘‘MRX’’ or
‘‘Exchange’’) 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 the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
34 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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Federal Register / Vol. 85, No. 40 / Friday, February 28, 2020 / Notices
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Options 9, Section 21, ‘‘Anti-Money
Laundering Compliance Program.’’ This
rule change is intended 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
Options 9, Section 21 to the CDD Rule’s
amendments to the minimum regulatory
requirements for Members’ 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 Exchange has designated this
proposal as ‘‘non-controversial’’ under
paragraph (f)(6) of Rule 19b–4 3 under
the Act.
The text of the proposed rule change
is available on the Exchange’s website at
https://nasdaqmrx.cchwallstreet.com/, at
the principal office of the Exchange, and
at the Commission’s Public Reference
Room.
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II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange 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. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
3 17
CFR 240.19b–4(f)(6).
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
I. 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;
• 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
requirement with respect to AML
programs, Exchange Members must also
comply with Options 9, Section 21,
which incorporates the BSA’s four
pillars, as well as requires Members’
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
4 31
U.S.C. 5311, et seq.
U.S.C. 5312(a)(2) (defining ‘‘financial
institution’’).
6 31 U.S.C. 5318(h)(1).
7 31 CFR 1023.210(b).
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’’).
5 See
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12041
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-dealers 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
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.’’
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.
FINRA also amended FINRA Rule 3310
to explicitly incorporate the fifth
pillar.12 This proposed rule change
amends Options 9, Section 21 to
harmonize it with the FINRA rule and
incorporate the fifth pillar.
II. Options 9, Section 21 and
Amendment to Minimum Requirements
for Members’ AML Programs
Section 352 of the USA PATRIOT Act
of 2001 13 amended the BSA to require
broker-dealers to develop and
implement AML programs that include
the four pillars mentioned above.
10 See
CDD Rule Release at 29398.
31 CFR 1010.230(d) (defining ‘‘beneficial
owner’’) and 31 CFR 1010.230(e) (defining ‘‘legal
entity customer’’).
12 See Securities Exchange Act Release No. 83154
(May 2, 2018), 83 FR 20906 (May 8, 2018) (File No.
SR–FINRA–2018–016).
13 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) (‘‘PATRIOT Act’’).
11 See
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Consistent with Section 352 of the
PATRIOT Act, and incorporating the
four pillars, Options 9, Section 21
requires each Member to develop and
implement a written AML program
reasonably designed to achieve and
monitor the Member’s compliance with
the BSA and implementing regulations.
Among other requirements, Options 9,
Section 21 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
independent testing for compliance to
be conducted by Member personnel or
a qualified outside party; (4) designate
and identify to the Exchange 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 the Exchange of any
changes to the designation; and (5)
provide ongoing training for appropriate
persons.
FinCEN’s CDD Rule does not change
the requirements of Options 9, Section
21, and Members must continue to
comply with its requirements.14
However, FinCEN’s CDD Rule amends
the minimum regulatory requirements
for broker-dealers’ AML programs by
explicitly requiring such programs to
include risk-based procedures for
conducting ongoing customer due
diligence.15 Accordingly, the Exchange
is proposing to amend Options 9,
Section 21 to incorporate this ongoing
customer due diligence element, or
‘‘fifth pillar’’ required for AML
programs. Thus, proposed Options 9,
Section 21(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
14 FinCEN
notes that broker-dealers must
continue to comply with FINRA Rules,
notwithstanding differences between the CDD Rule
and FINRA Rule 3310, which is substantially
identical to Options 9, Section 21. See CDD Rule
Release 29421, n. 85.
15 See CDD Rule Release at 29420; 31 CFR
1023.210.
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basis, to maintain and update customer
information.
As stated in the CDD Rule, these
provisions are not new and merely
codify existing expectations for
Members 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 Options 9, Section 21
the ongoing customer due diligence
element, or ‘‘fifth pillar,’’ required for
AML programs by the CDD Rule to aid
Members 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 Members’ AML
programs, the CDD Rule requires
Members to update their AML programs
to explicitly incorporate them.
III. 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
16 Id.
at 29419.
at 29421.
18 Id. at 29422.
19 Id.
20 Id.
17 Id.
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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
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
Conduct 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 detects
information that is relevant to assessing
the customer’s risk profile, the Member
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 update
customer information, including
beneficial ownership information, on an
ongoing or continuous basis.26
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
Section 6(b) of the Act,27 in general, and
furthers the objectives of Section 6(b)(5)
of the Act,28 in particular, in that it is
21 Id.
22 Id.
23 Id.
24 Id.
at 29402.
at 29420–21. See also FINRA Regulatory
Notice 17–40 (discussing identifying and verifying
the identity of beneficial owners of legal entity
customers).
26 Id.
27 15 U.S.C. 78f(b).
28 15 U.S.C. 78f(b)(5).
25 Id.
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Federal Register / Vol. 85, No. 40 / Friday, February 28, 2020 / Notices
designed to promote just and equitable
principles of trade, to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general to protect investors and the
public interest. Specifically, the
Exchange believes the proposed rule
change will protect investors, because it
will aid Members in complying with the
CDD Rule’s requirement that Members’
AML programs include risk-based
procedures for conducting ongoing
customer due diligence by also
incorporating the requirement into
Options 9, Section 21.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
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 Options 9, Section 21
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
Members’ AML programs, the CDD Rule
requires Members to update their AML
programs to explicitly incorporate them.
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. Further, all Exchange
Members that have customers are
required to be members of FINRA
pursuant to Rule 15b9–1 under the
Exchange Act,29 and are therefore
already subject to the requirements of
FINRA Rule 3310. Additionally, the
proposed rule change is virtually
identical 30 to FINRA Rule 3310. The
Exchange is not imposing any
additional direct or indirect burdens on
member firms or their customers
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
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)(iii) of the Act 31 and
subparagraph (f)(6) of Rule 19b–4
thereunder.32
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
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–
MRX–2020–05 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–MRX–2020–05. 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/
jbell on DSKJLSW7X2PROD with NOTICES
31 15
No written comments were either
solicited or received.
29 17
CFR 240.15b9–1.
Exchange notes that changes between the
proposed Rule and FINRA Rule 3310 are nonsubstantive and relate to cross references.
30 The
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17:27 Feb 27, 2020
Jkt 250001
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
the proposed rule change at least five business days
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. The Exchange has satisfied this
requirement.
32 17
PO 00000
Frm 00098
Fmt 4703
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12043
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–MRX–2020–05 and should
be submitted on or before March 20,
2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.33
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–04075 Filed 2–27–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–88271; File No. SR–ISE–
2020–08]
Self-Regulatory Organizations; Nasdaq
ISE, LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend Options 9,
Section 21 (Anti-Money Laundering
Compliance Program)
February 24, 2020.
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 February
18, 2020, Nasdaq ISE, LLC (‘‘ISE’’ or
‘‘Exchange’’) 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 the Exchange. The
33 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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]]>Agencies
[Federal Register Volume 85, Number 40 (Friday, February 28, 2020)]
[Notices]
[Pages 12040-12043]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-04075]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88275; File No. SR-MRX-2020-05]
Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Options 9,
Section 21 (Anti-Money Laundering Compliance Program)
February 24, 2020.
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 February 18, 2020, Nasdaq MRX, LLC (``MRX'' or ``Exchange'') 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 the Exchange. 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.
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[[Page 12041]]
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Options 9, Section 21, ``Anti-Money
Laundering Compliance Program.'' This rule change is intended 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 Options 9, Section 21 to the CDD Rule's
amendments to the minimum regulatory requirements for Members' 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 Exchange has designated this proposal as ``non-controversial''
under paragraph (f)(6) of Rule 19b-4 \3\ under the Act.
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\3\ 17 CFR 240.19b-4(f)(6).
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The text of the proposed rule change is available on the Exchange's
website at https://nasdaqmrx.cchwallstreet.com/, at the principal office
of the Exchange, 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, the Exchange 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. The Exchange 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
I. 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 U.S.C. 5312(a)(2) (defining ``financial institution'').
\6\ 31 U.S.C. 5318(h)(1).
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;
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).
In addition to meeting the BSA's requirement with respect to AML
programs, Exchange Members must also comply with Options 9, Section 21,
which incorporates the BSA's four pillars, as well as requires Members'
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-dealers 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.''
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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. FINRA also amended FINRA Rule 3310 to explicitly
incorporate the fifth pillar.\12\ This proposed rule change amends
Options 9, Section 21 to harmonize it with the FINRA rule and
incorporate the fifth pillar.
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\12\ See Securities Exchange Act Release No. 83154 (May 2,
2018), 83 FR 20906 (May 8, 2018) (File No. SR-FINRA-2018-016).
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II. Options 9, Section 21 and Amendment to Minimum Requirements for
Members' AML Programs
Section 352 of the USA PATRIOT Act of 2001 \13\ amended the BSA to
require broker-dealers to develop and implement AML programs that
include the four pillars mentioned above.
[[Page 12042]]
Consistent with Section 352 of the PATRIOT Act, and incorporating the
four pillars, Options 9, Section 21 requires each Member to develop and
implement a written AML program reasonably designed to achieve and
monitor the Member's compliance with the BSA and implementing
regulations. Among other requirements, Options 9, Section 21 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 independent testing for compliance to be
conducted by Member personnel or a qualified outside party; (4)
designate and identify to the Exchange 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 the
Exchange of any changes to the designation; and (5) provide ongoing
training for appropriate persons.
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\13\ 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) (``PATRIOT Act'').
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FinCEN's CDD Rule does not change the requirements of Options 9,
Section 21, and Members must continue to comply with its
requirements.\14\ However, FinCEN's CDD Rule amends the minimum
regulatory requirements for broker-dealers' AML programs by explicitly
requiring such programs to include risk-based procedures for conducting
ongoing customer due diligence.\15\ Accordingly, the Exchange is
proposing to amend Options 9, Section 21 to incorporate this ongoing
customer due diligence element, or ``fifth pillar'' required for AML
programs. Thus, proposed Options 9, Section 21(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\ FinCEN notes that broker-dealers must continue to comply
with FINRA Rules, notwithstanding differences between the CDD Rule
and FINRA Rule 3310, which is substantially identical to Options 9,
Section 21. 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 Members 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 Options 9, Section 21 the ongoing customer due
diligence element, or ``fifth pillar,'' required for AML programs by
the CDD Rule to aid Members 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 Members' AML
programs, the CDD Rule requires Members to update their AML programs to
explicitly incorporate them.
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\16\ Id. at 29419.
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III. 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\ Id. at 29421.
\18\ Id. at 29422.
\19\ Id.
\20\ Id.
\21\ 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\ Id.
\23\ Id.
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Conduct 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
detects information that is relevant to assessing the customer's risk
profile, the Member 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 update
customer information, including beneficial ownership information, on an
ongoing or continuous basis.\26\
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\24\ Id. at 29402.
\25\ Id. at 29420-21. See also FINRA Regulatory Notice 17-40
(discussing identifying and verifying the identity of beneficial
owners of legal entity customers).
\26\ Id.
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\27\ in general, and furthers the
objectives of Section 6(b)(5) of the Act,\28\ in particular, in that it
is
[[Page 12043]]
designed to promote just and equitable principles of trade, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and, in general to protect investors and the
public interest. Specifically, the Exchange believes the proposed rule
change will protect investors, because it will aid Members in complying
with the CDD Rule's requirement that Members' AML programs include
risk-based procedures for conducting ongoing customer due diligence by
also incorporating the requirement into Options 9, Section 21.
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\27\ 15 U.S.C. 78f(b).
\28\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose 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 Options 9, Section 21 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
Members' AML programs, the CDD Rule requires Members to update their
AML programs to explicitly incorporate them. 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. Further, all Exchange Members that have
customers are required to be members of FINRA pursuant to Rule 15b9-1
under the Exchange Act,\29\ and are therefore already subject to the
requirements of FINRA Rule 3310. Additionally, the proposed rule change
is virtually identical \30\ to FINRA Rule 3310. The Exchange is not
imposing any additional direct or indirect burdens on member firms or
their customers through this proposal, and as such, the proposal
imposes no new burdens on competition.
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\29\ 17 CFR 240.15b9-1.
\30\ The Exchange notes that changes between the proposed Rule
and FINRA Rule 3310 are non-substantive and relate to cross
references.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or 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)(iii) of the Act \31\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\32\
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\31\ 15 U.S.C. 78s(b)(3)(A)(iii).
\32\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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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 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-MRX-2020-05 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-MRX-2020-05. 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-MRX-2020-05 and should be submitted on
or before March 20, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\33\
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\33\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-04075 Filed 2-27-20; 8:45 am]
BILLING CODE 8011-01-P
