AML Enforcement: SEC Risk Alert & FFIEC Exam Manual Updates
Increasing intensity to AML programs, customer identification programs, CDD, and beneficial ownership obligations

KPMG Regulatory Insight
- SEC and FINRA have each identified BSA/AML compliance, customer due diligence, and beneficial ownership as key areas of examination focus (see KPMG Regulatory Alert here and here); they state the importance of AML program examinations has been elevated due to the geopolitical environment and the increased imposition of sanctions.
- Regulatory focus on financial institutions’ compliance with the CDD Rule and beneficial ownership obligations, coupled with the pending Corporate Transparency Act, further raise the stakes.
- Supervision/enforcement in this area is gaining in intensity and may also include a higher focus on data traceability, transaction monitoring, suspicious activity reporting, independent reviews, and employee training.
August 2023
SEC Risk Alert
The SEC Division of Examinations (Exams) issued a Risk Alert presenting observations about key anti-money laundering (AML) requirements based on recent examinations across the broker-dealer industry (BDs).
In particular, the Risk Alert covers:
- AML Programs, with a focus on Independent Testing and Training
- Customer Identification Program (CIP) Rule
- Customer Due Diligence (CDD) and Beneficial Ownership Requirements
- General Observations
AML Programs, Independent Testing, and Training
The Risk Alert notes that BDs are required to implement and maintain a written AML program, approved in writing by senior management. Deficiencies observed in examinations include:
Observations on Programs | |
Independent Testing |
|
Employee Training |
|
Customer Identification Program (CIP) Rule
The CIP Rule requires BDs to “establish, document, and maintain a written CIP appropriate for its size and business.” Exams uncovered BDs “whose CIPs appeared not to be properly designed to enable the firm to form a reasonable belief that it knows the true identity of customers.” Examples include:
Observations on CIPs |
---|
Inadequate CIPs, including failures to: |
|
|
|
|
|
|
Customer Due Diligence and Beneficial Ownership Requirements
The 2016 CDD Rule requires BDs’ AML programs to contain written procedures that are reasonably designed to identify and verify the identity of beneficial owners of “legal entity customers”. Exams found:
Observations on CDD Procedures |
---|
|
|
|
|
|
General Observations
In addition to the specific observations, Exams highlighted two general observations:
- Some registrants did not appear to devote sufficient resources, including staffing, to AML compliance given the volume and risks of their business.
- The effectiveness of policies, procedures, and internal controls was reduced when firms did not implement those measures consistently.
FFIEC’s BSA/AML Examination Manual Updates
Separately, the members of the Federal Financial Institutions Examination Council (FFIEC – including the Federal Reserve, OCC, and FDIC) issued updates to six sections of its BSA/AML Examination Manual. These updated sections include:
- Special Information Sharing Procedures to Deter Money Laundering and Terrorist Activity
- Due Diligence Programs for Correspondent Accounts for Foreign Financial Institutions
- Due Diligence Programs for Private Banking Accounts
- Prohibition on Correspondent Accounts for Foreign Shell Banks; Records Concerning Owners of Foreign Banks and Agents for Service of Legal Process
- Summons or Subpoena of Foreign Bank Records; Termination of Correspondent Relationship; Records Concerning Owners of Foreign Banks and Agents for Service of Legal Process
- Reporting Obligations on Foreign Bank Relationships with Iranian-Linked Financial Institutions
Dive into our thinking:
AML Enforcement: SEC Risk Alert & FFIEC Exam Manual Updates
Download PDFExplore more
Meet our team



Subscribe to CFO Real Insights
Discover KPMG CFO Real Insights, designed to help improve business performance across the enterprise and in your finance organization.