FINRA Series 6 Investment Company and Variable Contracts Products Representative ExaminationProfessional Conduct and Ethical ConsiderationsMedium
A registered representative (RR) has a client who consistently makes large cash deposits and then requests immediate wire transfers to various international accounts, often to different recipients. The RR notices that the client's stated occupation does not seem to align with the volume and nature of these transactions. What is the RR's most appropriate immediate action?
- AAttempt to clarify the purpose of the transactions directly with the client to ensure they understand the risks.
- BRefuse to process the transactions and immediately terminate the client relationship.
- CFile a Suspicious Activity Report (SAR) with FinCEN and continue to process the transactions unless instructed otherwise.
- DNotify their branch manager and document the unusual activity in the client's file, but continue processing.
Show answer & explanationAnswer & explanation
Correct answer: C. File a Suspicious Activity Report (SAR) with FinCEN and continue to process the transactions unless instructed otherwise.
When an RR encounters transactions that appear suspicious or indicative of illegal activity, such as money laundering, the most appropriate action is to file a Suspicious Activity Report (SAR) with FinCEN. This must be done confidentially without alerting the client.
Why the other options are wrong
- A. Clarifying with the client could 'tip off' the client about the suspicion, which is prohibited. This is not the most appropriate immediate action.
- B. Refusing to process transactions or immediately terminating the relationship without proper procedure could also be seen as tipping off and might disrupt an ongoing investigation. This is an extreme measure and not the first step.
- D. Notifying the branch manager and documenting is part of the internal process, but the primary regulatory obligation for suspicious activity is to file a SAR with the appropriate authority.
Suspicious Activity Report (SAR)
A report filed by financial institutions with the Financial Crimes Enforcement Network (FinCEN) whenever there is a suspected transaction related to money laundering or fraud.
- Mandatory for suspicious transactions exceeding $5,000 (or $2,000 for money services businesses).
- Must be filed within 30 days of initial detection.
- Confidentiality is paramount; RRs must not 'tip off' the client.
Memory trick: SAR-ing is caring, but keep it quiet!