Securities Industry Essentials (SIE) ExamOverview of Regulatory FrameworkMedium
A broker-dealer firm's compliance department is conducting an internal audit of its Anti-Money Laundering (AML) program. The audit reveals that the firm is diligently filing Currency Transaction Reports (CTRs) for transactions exceeding $10,000. However, the auditor notes that the firm is not adequately identifying and reporting suspicious activities that do not meet the CTR threshold but still raise concerns. Which regulatory requirement is the firm potentially failing to meet?
- AFINRA's suitability rule for customer investments.
- BThe Investment Company Act of 1940's diversification rules.
- CThe Securities Act of 1933's prospectus delivery requirements.
- DThe Bank Secrecy Act's Suspicious Activity Report (SAR) requirements.
Show answer & explanationAnswer & explanation
Correct answer: D. The Bank Secrecy Act's Suspicious Activity Report (SAR) requirements.
The Bank Secrecy Act (BSA) requires financial institutions, including broker-dealers, to report suspicious transactions that might indicate money laundering or other illegal activities. This is done by filing Suspicious Activity Reports (SARs) with FinCEN, regardless of whether the transaction meets the CTR threshold.
Why the other options are wrong
- A. Suitability relates to appropriate investment recommendations, not AML reporting.
- B. Diversification rules apply to investment companies, not AML reporting for broker-dealers.
- C. Prospectus delivery is related to new issues, not AML.
Suspicious Activity Report (SAR)
A report filed by financial institutions with the Financial Crimes Enforcement Network (FinCEN) to report transactions suspected of money laundering, terrorist financing, or other illegal activities.
- Required by the Bank Secrecy Act (BSA).
- Filed for transactions of $5,000 or more if suspicious, or any amount if highly suspicious.
- Must be filed within 30 calendar days of initial detection.
Memory trick: CTR for big cash, SAR for suspicious acts, both stop crime.