FINRA Series 6 Investment Company and Variable Contracts Products Representative ExaminationProfessional Conduct and Ethical ConsiderationsMedium
A registered representative (RR) notices that a long-time client, who frequently travels internationally, has started making unusually large and frequent wire transfers to various offshore accounts, often to different recipients. The client's business does not typically involve such transactions, and they become evasive when questioned about the purpose of these transfers. What is the RR's most appropriate initial action?
- AAdvise the client to use a different bank for their international transfers to avoid scrutiny.
- BDirectly confront the client and demand a detailed explanation for all transactions.
- CDocument the suspicious activity and report it internally to the firm's compliance department.
- DContinue processing the transfers as requested, assuming the client has legitimate reasons.
Show answer & explanationAnswer & explanation
Correct answer: C. Document the suspicious activity and report it internally to the firm's compliance department.
Registered representatives have an obligation to report suspicious activity, especially transactions that may indicate money laundering. The initial step is always to report internally to compliance, who will then determine if a Suspicious Activity Report (SAR) to FinCEN is necessary.
Why the other options are wrong
- A. Advising the client to move funds elsewhere could be seen as aiding in money laundering or evading reporting requirements.
- B. Confronting the client directly could alert them and potentially hinder an investigation.
- D. Ignoring suspicious activity is a violation of anti-money laundering (AML) regulations and firm policies.
Suspicious Activity Report (SAR)
A report filed by financial institutions with the Financial Crimes Enforcement Network (FinCEN) regarding suspicious transactions that might be indicative of money laundering, terrorist financing, or other illegal activities.
- Filed by financial institutions (including broker-dealers)
- Reports transactions of $5,000 or more (or any amount if suspicious)
- Protects institutions from liability for reporting in good faith
Memory trick: Don't just watch, don't confront, don't help them hide, REPORT!