CHAPTER 16 - GOVERNMENT REGULATORS AND REGULATIONS Flashcards
(36 cards)
What was the SEC created by?
Securities Exchange Act of 1934
What is the securities industry primary regulatory body?
SEC
What does the SEC do?
Regulates BDs that transact securities business with customers or other BDs must register with SEC
Regulates all exchanges and trading markets
Also has regulatory authority over licensing of securities reps, delegated to FINRA
Securities Information Providers also fall under SECs authority
BDs that do not comply with SEC rules are subject to:
Censure
Limits on activities, functions, or operations
Suspension of registration
Revocation of registration
Fines
Areas that fall under Act of 1934
Regulation of insider transactions, short sales, proxies
Regulation of client accounts
Customer protection rule
Net capital rule and financial responsibility for BDs
Reporting requirements for issuers (annual reports)
Can BD imply that SEC has passed upon or approved BDs financial standing or business?
NO
Financial Crimes Enforcement Network (FinCEN)
Safeguard financial system from illicit use, combat money laundering, and promote national security through collection, analysis, dissemination of financial intelligence
IRS
Primary tax enforcement of government
Power to investigate tax evasion
Most BDs required to provide the IRS with customer and firm info on demand
Enforces tax laws
Office of the Comptroller of Currency
Supervises a bunch of banks and savings associations to ensure that banks operate in a safe and sound manner, provide fair access to financial services, treat customers fairly, and comply with applicable laws and regulations
Director of FDIC
Branches of the Department of Treasury
FinCEN
IRS
Comptroller of Currency
FinCEN responsibilities
Does not have an enforcement branch but is more of an intelligence agency to detect illegal activity
Collects info from reports
Reports that go to FinCEN
Currency transaction report
Suspicious activity report
Currency Transaction Reports (CTRs)
Bank Secrecy Act requires BDs to report any currency received of MORE THAN $10,000 on a single day from the same customers on a CTR
Failure to report can result in large fines or prison
Records relating to filed reports must be held for 5 years
Report must be filed WITHIN 15 days of receipt
Involve deposits of currency, not checks or wire transfers and no necessarily US dollars
Two federal agencies empowered to deal with tracking large cash deposits are Federal Reserve and US Treasury Department
Designing deposits to fall under $10k is prohibited and called structuring (institutions should have systems in place to catch this)
Suspicious Activities Reports (SARs)
USA Patriot Act requires firm to report to FinCEN when there is a suspicious event
Any transaction that involves AT LEAST $5,000 in funds if the firm suspects that it falls in one of four classes:
- Funds derived from illegal activities
- Designed to evade the requirements of the Bank Secrecy Act
- Serves no business or lawful purpose
- Involves the use of the firm to facilitate criminal activity
Firms must file a SAR within 30 days of being aware of suspicious activity and hold the documentation for 5 year
DOLLAR AMOUNTS FOR CTRs and SARs
CTRs = MORE THAN $10,000
SARs = AT LEAST $5,000
USA Patriot Act privacy parts
Filing SARs need to stay confidential, cannot tell person involved, and must refuse to provide even if subpoenaed and must notify FinCEN unless disclosure is by FinCEN, SEC, or SRO
Act also makes firms keep records of wire transfers of $3,000 or more, want name and address of sender and recipient, amount, and financial institution
Money Laundering
Bank Secrecy Act established the US Treasury Department as the lead agency for developing regulations in connection with anti-money laundering (AML) programs
Concerned with both where it comes from and where it is going
Three Stages of Money Laundering
- Placement - funds are moved into money laundering system (most likely to be detected)
- Layering - Conceal the source of the funds through series of transactions in various forms
- Integration - Illegal funds are commingled with legit funds in what looks like a legit business
Anti-Money Laundering AML Officer
Bank Secrecy Act requires firms to have a chief anti-money laundering officer. No requirement that they are a RR
They will establish compliance procedures to detect laundering
If red flag is detected, should be reported to AML immediately
Examples of red flags for laundering
Customer has lack of concern around risk, commission, or other costs
Customer tries to make frequent large deposits of currency or cashier checks
Customer makes large number of wires transfers to third parties
Customer is engaging in excessive journal entries with unrelated accounts
Customer designs currency deposits or withdrawals to fall under $10k CTR threshold (structuring)
What federal agency helps create regulations to fight money laundering?
Treasury does that
FinCEN gathers the info but Treasury creates the regulations
USA Patriot Act and customer identifications programs
USA Patriot Act requires financial institutions to maintain CIPs to prevent money laundering and terrorists
Financial institutions must keep records of identification and check customer names against the specially designated nationals (SDN) list maintained by the Office of Foreign Assets Control (OFAC)
What does OFAC do?
OFAC publishes list of people and companies owned by controlled by targeted countries or people
OFAC maintains the SDN list in searchable form on Treasury website
What happens when someone is on the SDN list?
Their assets are blocked
US persons and businesses are prohibited from conducting business with them
Designed to prevent illegal activities
Businesses should conduct checks before establishing a relationship and should recheck periodically
