The industry got a wake-up call — or perhaps it's more fitting to say a colossal kick in the keister — when one of its biggest players was hit recently with a whopping fine for compliance failures.
We're talking about
the $17 million fine Finra announced May 18 against an independent broker-dealer with a fairly clean compliance record of late. The offender:
Raymond James. The issue: anti-money-laundering failures.
Really?
Yes, and it's time advisers themselves take regulators' focus on this issue seriously. Compliance rules in this area
are only going to become stricter in the next few years.
“This is going to be a burden on advisers and firms, and I'm not sure they are paying attention,” Tom Nally, president of TD Ameritrade Institutional, said in
a story on AML by InvestmentNews reporter Liz Skinner last week.
SEC-REGISTERED ADVISERS
As the story notes, the U.S. Treasury Department's Financial Crimes Enforcement Network proposed in August that advisers registered with the Securities and Exchange Commission be required to establish AML programs and report suspicious activity to the government, just as broker-dealers and banks have been doing for more than a decade. The SEC then would include checks on these procedures in their exams.
Who knows the client better than his or her personal financial adviser? The government is coming to appreciate the power of advisers' relationship-centric businesses to root out wrongdoers.
And Treasury's FinCEN recently added to its existing AML demands on all financial institutions a requirement that they identify beneficial owners of customer accounts. That will go into effect in May 2018. It's not clear whether advisers are included under the catchall “financial institutions,” but because they were in the August proposal, it's a safe bet.
While advisers have been almost myopically focused on the Labor Department's new fiduciary rule for retirement advice, Mr. Nally says, “the AML rules are the bus right behind the oncoming train.”
Raymond James & Associates Inc. and Raymond James Financial Services Inc. got hit by the bus for missing red flags of suspicious activity within their “patchwork of written procedures and systems across different departments,” according to the
Financial Industry Regulatory Authority Inc.
Not only was Raymond James disciplined, Linda Busby, who was the firm's anti-money-laundering compliance officer at the time, was slapped with a $25,000 fine and a three-month suspension. Ouch.
Finra made a point of highlighting its willingness to go after individuals.
'INDIVIDUAL LIABILITY'
“This case demonstrates that when there are broad-based failures within specific areas of responsibility, we will seek individual liability where appropriate,” the regulator wrote in its news release.
Finra also emphasized its frustration with recurring offenses. Raymond James Financial Services was sanctioned in 2012 for inadequate AML procedures and agreed to review its program as part of a settlement.
Many advisers wouldn't even begin to imagine their clients might attempt to launder money through their investments — it's certainly not top of mind. And, frankly, it probably won't happen to most advisers. But advisers can get in trouble with regulators, nonetheless, if they don't have processes in place to catch the thief who may never become a client. Because you just don't know.
In the same way that you don't buy insurance because you plan to get in a head-on collision or have your house burn down, as a responsible citizen (and because it's often the law), you put the protections in place for unexpected — but potential — risks.
So the lesson for firms and now individual advisers essentially boils down to this: If you have been warned about anti-money-laundering failures, take it seriously. Even if you have not been warned about anti-money-laundering failures, take it seriously. The regulators are.
