Document ID: SEC-2009-0840-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of Proposed Rule Change To Adopt FINRA Rule 3310 (Anti-Money Laundering Compliance Program) in the Consolidated FINRA Rulebook
Posted Date: 2009-06-22T04:00Z

[Federal Register: June 22, 2009 (Volume 74, Number 118)]
[Notices]               
[Page 29527-29529]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22jn09-118]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60112; File No. SR-FINRA-2009-039]

 
Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of Proposed Rule Change To Adopt 
FINRA Rule 3310 (Anti-Money Laundering Compliance Program) in the 
Consolidated FINRA Rulebook

June 15, 2009.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on June 1, 2009, Financial Industry Regulatory Authority, Inc. 
(``FINRA'') (f/k/a National Association of Securities Dealers, Inc. 
(``NASD'')) filed with the Securities and Exchange Commission (``SEC'' 
or ``Commission'') the proposed rule change as described in Items I, 
II, and III below, which Items have been substantially prepared by 
FINRA. The Commission is publishing this notice to solicit comments on 
the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to adopt: (1) NASD Rule 3011 (Anti-Money 
Laundering Compliance Program) as FINRA Rule 3310 (Anti-Money 
Laundering Compliance Program), without substantive change; (2) NASD 
IM-3011-1 (Independent Testing Requirements) as supplementary material 
to proposed FINRA Rule 3310, subject to certain amendments; and (3) 
NASD IM-3011-2 (Review of Anti-Money Laundering Compliance Person 
Information) as supplementary material to proposed FINRA Rule 3310, 
without substantive change. The proposed rule change would delete 
Incorporated NYSE Rule 445 (Anti-Money Laundering

[[Page 29528]]

Compliance Program) in its entirety as duplicative.
    The text of the proposed rule change is available on FINRA's Web 
site at http://www.finra.org, at the principal office of FINRA, and at 
the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, FINRA included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. FINRA has prepared summaries, set forth in sections A, 
B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    As part of the process of developing a new consolidated rulebook 
(``Consolidated FINRA Rulebook''),\3\ FINRA is proposing to adopt: (1) 
NASD Rule 3011 (Anti-Money Laundering Compliance Program) as FINRA Rule 
3310 (Anti-Money Laundering Compliance Program), without substantive 
change; (2) NASD IM-3011-1 (Independent Testing Requirements) as 
supplementary material to proposed FINRA Rule 3310, subject to certain 
amendments; and (3) NASD IM-3011-2 (Review of Anti-Money Laundering 
Compliance Person Information) as supplementary material to proposed 
FINRA Rule 3310, without substantive change. The proposed rule change 
would delete Incorporated NYSE Rule 445 in its entirety (Anti-Money 
Laundering Compliance Program) as duplicative. The proposed rule change 
is discussed in further detail below.
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    \3\ The current FINRA rulebook consists of: (1) FINRA Rules; (2) 
NASD Rules; and (3) rules incorporated from NYSE (``Incorporated 
NYSE Rules'') (together, the NASD Rules and Incorporated NYSE Rules 
are referred to as the ``Transitional Rulebook''). While the NASD 
Rules generally apply to all FINRA members, the Incorporated NYSE 
Rules apply only to those members of FINRA that are also members of 
the NYSE (``Dual Members''). The FINRA Rules apply to all FINRA 
members, unless such rules have a more limited application by their 
terms. For more information about the rulebook consolidation 
process, see FINRA Information Notice, March 12, 2008 (Rulebook 
Consolidation Process).
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Background
    NASD Rule 3011 (Anti-Money Laundering Compliance Program) and 
Incorporated NYSE Rule 445 (Anti-Money Laundering Compliance Program) 
are substantially similar rules requiring members to develop and 
implement a written anti-money laundering (``AML'') program reasonably 
designed to achieve and monitor compliance with the requirements of the 
Bank Secrecy Act (``BSA'') \4\ and the implementing regulations 
promulgated by the Department of the Treasury. Each member's AML 
compliance program must be approved, in writing, by a member of senior 
management.
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    \4\ See 31 U.S.C. 5311, et seq.
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    The rules require that each AML compliance program, must, at a 
minimum: (1) Establish and implement policies and procedures that can 
be reasonably expected to detect and cause the reporting of suspicious 
transactions; (2) establish and implement policies, procedures, and 
internal controls reasonably designed to achieve compliance with the 
BSA and its implementing regulations; (3) provide for annual (on a 
calendar-year basis) independent testing for compliance to be conducted 
by member personnel or a qualified outside party; \5\ (4) designate and 
identify to FINRA an individual or individuals (i.e., AML compliance 
person(s)) who will be responsible for implementing and monitoring the 
day-to-day operations and internal controls of the AML compliance 
program and provide prompt notification to FINRA of any changes to the 
designation; and (5) provide ongoing training for appropriate persons.
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    \5\ Both rules permit a member to conduct the independent 
testing every two years (on a calendar-year basis) if it does not 
execute transactions for customers or otherwise hold customer 
accounts or act as an introducing broker with respect to customer 
accounts (e.g., engages solely in proprietary trading, or conducts 
business only with other broker-dealers). Incorporated NYSE Rule 445 
uses slightly different terminology to achieve the same result, 
specifically providing that a member may conduct independent testing 
every two years (on a calendar-year basis) if it ``does not engage 
in a public business (e.g., engages solely in proprietary trading, 
or conducts business only with other broker-dealers).''
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    NASD IM-3011-1 (Independent Testing Requirements) and the 
supplementary material to Incorporated NYSE Rule 445 also contain 
substantially similar provisions clarifying that: (1) Members should 
undertake more frequent testing than required if circumstances warrant; 
(2) the person conducting the independent test must have a working 
knowledge of applicable requirements under the BSA and its implementing 
regulations; and (3) the testing cannot be conducted by the AML 
compliance person(s), by any person who performs the functions being 
tested, or by any person who reports to any of these persons.
    NASD IM-3011-1, however, permits the AML compliance program testing 
to be conducted by persons who report to either the AML compliance 
person or persons performing the functions being tested if: (1) The 
member has no other qualified internal personnel to conduct the test; 
(2) the member establishes written policies and procedures to address 
conflicts that may arise from allowing the test to be conducted by a 
person who reports to the person(s) whose activities he or she is 
testing (e.g., anti-retaliation procedures); (3) to the extent 
possible, the person conducting the test reports the results of the 
test to someone who is senior to the AML compliance person or persons 
performing the functions being tested; and (4) the member documents its 
rationale, which must be reasonable, for determining there is no other 
alternative than to comply in this manner. In addition, if the person 
does not report the results consistent with (3) above, the member must 
document a reasonable explanation for not doing so. Incorporated NYSE 
Rule 445 does not have a comparable provision.
    Finally, NASD IM-3011-2 (Review of Anti-Money Laundering Compliance 
Person Information) requires each member to identify, review, and if 
necessary, update the information regarding its AML compliance person 
in the manner prescribed in NASD Rule 1160.\6\ This provision is 
comparable to SM .03 of NYSE Rule 445.
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    \6\ FINRA is proposing to replace NASD Rule 1160 with FINRA Rule 
4540 (Member Information and Data Reporting and Filing 
Requirements). See Regulatory Notice 09-02 (January 2009).
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Proposed FINRA Rule 3310 and Related Supplementary Material
    The proposed rule change would adopt NASD Rule 3011 without 
substantive change into the Consolidated FINRA Rulebook as FINRA Rule 
3310 (Anti-Money Laundering Compliance Program). In addition, the 
proposed rule change would adopt NASD IM-3011-2, without substantive 
change, as supplementary material to proposed FINRA Rule 3310.
    With respect to NASD IM-3011-1, the proposed rule change would 
adopt its provisions as supplementary material to proposed FINRA Rule 
3310, but would eliminate the provision that currently allows, subject 
to specified conditions, the AML compliance program testing to be 
conducted by persons who report to either the AML compliance person or 
persons performing the functions being tested (referred to as the 
``independent

[[Page 29529]]

testing exception''). The Financial Crimes Enforcement Network 
(``FinCEN''), which is responsible for administering the BSA and its 
implementing regulations, has stated that the independent testing 
provision of the BSA precludes AML program testing by personnel with an 
interest in the outcome of the testing and that an independent testing 
exception, such as the one in NASD IM-3011-1, is inconsistent with this 
BSA provision and FinCEN's interpretive guidance on the BSA's 
independent testing requirement.\7\ Accordingly, consistent with 
FinCEN's guidance, FINRA is proposing to eliminate the independent 
testing exception in connection with its adoption of proposed FINRA 
Rule 3310.
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    \7\ See Letter from Jamal El-Hindi, Associate Director, 
Regulatory Policy & Programs Division, FinCEN, to Nancy M. Morris, 
Secretary, SEC (August 22, 2007). FinCEN submitted the letter to the 
SEC in response to the NYSE's ``omnibus filing,'' a rule filing that 
sought to achieve greater harmonization between the NYSE and NASD 
rules, including the AML compliance program rules (SR-NYSE-2007-22). 
See Exchange Act Release No. 56142 (July 16, 2007), 72 FR 42195 
(August 1, 2007).
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    Finally, as stated previously, the proposed rule change would 
delete Incorporated NYSE Rule 445 and its related supplementary 
material in their entirety as duplicative. FINRA will announce the 
implementation date of the proposed rule change in a Regulatory Notice 
to be published no later than 90 days following Commission approval.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\8\ which requires, among 
other things, that FINRA rules must be designed to prevent fraudulent 
and manipulative acts and practices, to promote just and equitable 
principles of trade, and, in general, to protect investors and the 
public interest. FINRA believes that the proposed rule change would 
continue to assist members in identifying and preventing money 
laundering abuses that can affect the integrity of the U.S. capital 
markets.
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    \8\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    FINRA does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-FINRA-2009-039 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-FINRA-2009-039. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/
rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for inspection 
and copying in the Commission's Public Reference Room, 100 F Street, 
NE., Washington, DC 20549, on official business days between the hours 
of 10 a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at the principal office of FINRA. All comments 
received will be posted without change; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number insert SR-FINRA-2009-039 and 
should be submitted on or before July 13, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-14531 Filed 6-19-09; 8:45 am]

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