This year is the year that registered investment advisers need to get fully on the bandwagon with the Bank Secrecy Act. FinCEN promulgated the Investment Adviser Rule to spread the Bank Secrecy Act requirements. While most investment advisers are doing some form of AML-CFT reviews, the process is now subject to explicit regulatory requirements. The compliance date is January 1, 2026.
I’ve been keeping an eye on AML actions brought by the SEC to use those failures to help understand what investment advisers need to do (and should not do.)
GTS expanding rapidly as a market maker for OTC securities. From 50,000 daily trades in August 2019 to 200,000 in August 202o, becoming the second largest broker-dealer for OTC securities. According to the SEC order, GTS failed to adopt and implement reasonably designed AML policies and procedures to surveil OTC transactions within its OTC unit and failed to file Suspicious Activity Reports when required to do so by the SAR Rule.
GTS had an AML surveillance system that flagged high-volume trading activity and submitted a report to an OTC unit supervisor. However that supervisor’s primary responsibilities were unrelated to the AML program and did not report to the AML CCO. So the flags went largely unaddressed.
The policies and procedures gave the supervisor little guidance on what to do or what to look for. According to the SEC order, the polices should have listed these as suspicious transactions:
a. Trading activity that comprised a significant proportion of the daily trading volume in a thinly traded or low-priced security;
b. Trading activity involving sudden spikes in demand for, coupled with sudden price changes in, a thinly traded or low-priced security, including instances of such trading coupled with suspicious stock promotion activity; and
c. Significant trading in a thinly traded or low-priced security previously subject to a Commission trading suspension.
The AML failures cost GTS a $350,000 fine.
Sources: