The NIBA conference held in Chicago last month offered a wide variety of informational sessions applicable to Introducing Brokers’ business. My compliments to Melinda Schramm and the NIBA board for assembling a conference schedule that covered topics of importance to the IB community, many of which were very timely, and provided an essential understanding of certain issues that currently impact IB business.
I participated on the panel discussion on
Anti-Money Laundering (“AML”) with attorney Neal Stevens, who provided a
comprehensive overview of AML requirements, and NFA Associate Director, Valerie
O’Malley, who discussed common deficiencies found in NFA reviews and their
consequences. My focus was on the
operational aspects of effective AML procedures and relevant practices.
The AML Policies an Introducing Broker must maintain pursuant to regulation should not only address the required points, but should be specific to the actual practices of the IB. In a regulatory examination, a firm’s policies and procedures, including AML, are examined to ensure they contain compulsory elements. The procedures are tested to ensure a firm’s current practices conform to written procedures.
This latter part of the examination is the
reason that generic procedures are not usually adequate. While AML procedures are the most standard of
the various policies and procedures required of an IB, they must still reflect
the operations of the firm. All of the
policies and procedures that we write for clients are tailored specifically to
the firm’s actual practices and updated periodically to encompass changes in
regulations or firm operations.
During the AML panel discussion, I was asked what
the most important component of an AML program was for an Introducing
Broker. In my opinion, the “know your
customer” processes of the AML program are the most significant aspect for an
IB. The broker is the one with the
relationship with the customer, so is better positioned to know whether
transactions are unusual or suspicious. Cash
activity that may be unusual for one customer may be common practice for
another. Communication with customers
provides context for unusual transactions.
Customer interaction, or the absence of it, may provide the broker
insight as to whether atypical activity has a valid purpose or is suspicious.
Strong “know your customer” rules and practices
have benefits to an IB beyond AML compliance.
I think that it is more likely for an IB to have a customer committing
fraud via an unregistered commodity pool than an IB to have a customer that is
a terrorist or drug dealer. Customer
identification procedures for entity clients, and Bylaw 1101 adherence
procedures can help detect such fraud. Training
staff to be perceptive is wise, and ongoing diligence is necessary. There are occasions when a customer may make
a statement that contradicts information previously provided. Likewise, a customer may make a large deposit
into his account that doesn’t correlate with the financial information provided
at account opening. Sound “know your
customer” practices may detect fraud and benefit the Introducing Broker by
avoiding being named in a fraud related action.
If you have any questions regarding your AML
obligations or other policy and procedure requirements, please feel free to
contact me directly via my email address susan@turnkeytradingpartners.com. Turnkey Trading Partners
("TTP") offers a wide range of consulting solutions to CFTC
registered, NFA member firms of all types.
We provide a focus on operational support for IBs and would welcome the
opportunity to learn more about your business.