As the regulatory landscape is constantly evolving, Compliance Risk Concepts (“CRC”) is issuing its monthly review and summary of various FINRA, SEC, NFA, and FinCEN publications to assist our clients in keeping abreast of notable regulatory developments and deadlines in an effort to strengthen their compliance and regulatory initiatives.
Regulatory Notices
Per Regulatory Notice 24-10, FINRA reminded members of its policy prohibiting members and their associated persons from making audio or video recordings of conversations between FINRA staff and member firm personnel during calls or meetings related to FINRA’s oversight functions.
Final Rules
Per Release No. 33-11293, the SEC adopted amendments to Volume II of the Electronic Data Gathering, Analysis, and Retrieval system Filer Manual (“EDGAR Filer Manual” or “Filer Manual”) and related rules and forms. EDGAR Release 24.2 was scheduled to be deployed in the EDGAR system on July 1, 2024.
Per Release No. 33-11294, the SEC adopted rule and form amendments to provide a tailored form to register the offerings of registered index-linked annuities (“RILAs”). Specifically, the SEC amended the form currently used by most variable annuity separate accounts, Form N-4, to require issuers of RILAs to register offerings on that form as well. To facilitate this amendment, the SEC also amended certain filing rules and making other related amendments. These changes will implement the requirements relating to RILAs contained in Division AA, Title I of the Consolidated Appropriations Act, 2023. The SEC also extended the registration, filing, and disclosure requirements that the SEC is adopting for RILA offerings to the offerings of registered market value adjustment annuities. Further, the SEC adopted other amendments to Form N-4 that will apply to all issuers that use that form. The SEC is applying to RILA and registered market value adjustment annuity advertisements and sales literature a current SEC rule that provides guidance as to when sales literature is materially misleading under the Federal securities laws. Finally, the SEC adopted technical amendments to Forms N-6 and N-3 to correct errors from prior Commission rulemakings.
Proposed Rules
There were no proposed rules in July.
Interim Final Rules
There were no interim final rules in July.
Interpretive Releases
There were no interpretive releases in July.
Policy Statements
There were no policy statements in July.
Notices to Members
Notice I-24-13
July 23, 2024
FCM and IB Members--FinCEN updates its list of FATF-identified jurisdictions with AML/CFT/CPF deficiencies
On July 3, 2024, the Financial Crimes Enforcement Network (FinCEN) issued a news release announcing that the Financial Action Task Force (FATF) updated its list of jurisdictions with strategic AML/CFT/CPF deficiencies. NFA Member futures commission merchants (FCM) and introducing brokers (IB) should review this release to ensure that their AML programs have the most current information on FATF-identified jurisdictions with AML/CFT/CPF deficiencies and revise their AML programs accordingly. A copy of the news release is available on FinCEN's website.
NFA News Releases
July 8, 2024
NFA orders California firm Rimar Capital LLC and its principal Itai Royi Liptz to withdraw from NFA membership and principal status and not reapply for 30 months
July 8, Chicago--NFA has ordered Rimar Capital LLC (Rimar Capital), an NFA Member commodity trading advisor located in Burlingame, California, and Itai Royi Liptz (Liptz), an associated person (AP) and a principal of Rimar Capital and an NFA Associate, to withdraw from and not reapply for NFA membership and principal status for 30 months. If either Rimar Capital or Liptz seeks NFA membership or principal status following the 30-month period, they must pay a $90,000 fine.
The Decision, issued by NFA's Business Conduct Committee (BCC), is based on a Complaint issued by the BCC and a settlement offer submitted by Rimar Capital and Liptz, in which they neither admitted nor denied the allegations in the Complaint.
In its Decision, the BCC found that Rimar Capital and Liptz failed to observe high standards of commercial honor and just and equitable principles of trade by trading ahead of customer accounts, used deceptive and misleading communications with potential customers, and failed to supervise its operations and employees. The BCC also found that Rimar Capital allowed an individual to act as an AP without being registered in that capacity.
The complete text of the Complaint and Decision can be viewed on NFA's website.
July 29, 2024
NFA orders Florida-based former NFA Associate Richard Alexander Acosta to not apply for NFA membership status for five years
July 29, Chicago--NFA has ordered Richard Alexander Acosta (Acosta) to not apply for NFA membership status for five years and not to act as a principal of an NFA Member for seven years. Acosta is a former NFA Associate and a previous associated person and principal of Bit5ive Mining Fund Advisor, LLC (Bit5ive Advisor), a former NFA Member commodity pool operator located in Doral, Florida.
The Decision, issued by an NFA Hearing Panel, is based on a Complaint issued by NFA's Business Conduct Committee and a settlement offer submitted by Acosta, in which he neither admitted nor denied the allegations in the Complaint. In its Decision, the Panel found that Acosta willfully provided false and misleading information to NFA and failed to cooperate promptly and fully with NFA.
In September 2023, NFA issued an emergency enforcement action against Bit5ive Advisor and Acosta, which suspended them from NFA membership and imposed other restrictions on them (e.g., prohibited them from soliciting or accepting any investor funds). This action was taken to protect customers, the derivatives industry and other NFA Members due to Bit5ive Advisor's and Acosta's failure to cooperate with NFA during an examination.
The complete text of the Complaint and Decision can be viewed on NFA's website.
July 29, 2024
NFA orders Chicago, Ill. commodity pool operators Turing FX LLC and Rockhill Capital Management LLC not to reapply for NFA membership and orders their principal not to reapply for NFA membership for seven years
July 29, Chicago--NFA has ordered Turing FX LLC (Turing) and Rockhill Capital Management LLC (Rockhill), NFA Member commodity pool operators located in Chicago, Ill., not to reapply for NFA membership or act as a principal of an NFA Member at any time in the future. NFA has also ordered Christian Hillenbrand, the sole principal and associated person of both Turing and Rockhill, to withdraw from, and not reapply for, NFA membership status for seven years and to comply with other requirements and undertakings, including paying a $150,000 fine if he seeks to reapply for NFA membership in the future.
The Decision, issued by NFA's Business Conduct Committee (BCC), is based on a Complaint issued by the BCC and a settlement offer submitted by Turing, Rockhill and Hillenbrand, in which they neither admitted nor denied the allegations in the Complaint. The Complaint alleged that, among other things, Turing and Rockhill permitted the pools they operated to make improper advances of pool assets to Turing and Rockhill and failed to deliver NFA-accepted Disclosure Documents to participants in the pools they operated prior to accepting participants' subscriptions. The Complaint also alleged that Turing, Rockhill and Hillenbrand failed to observe high standards of commercial honor and just and equitable principles of trade regarding their use of the pools' assets. Further, the Complaint alleged that Rockhill and Hillenbrand provided NFA and the participants in the pool operated by Rockhill with false and misleading information as to the pool's net asset value. In its Decision, the BCC found that Turing, Rockhill and Hillenbrand violated NFA Compliance Rule 2-4, that Turing and Rockhill violated NFA Compliance Rules 2-45 and 2-13, and that Rockhill and Hillenbrand violated NFA Compliance Rule 2-2(f).
The complete text of the Complaint and Decision can be viewed on NFA's website.
FinCEN News Releases
Financial Action Task Force Identifies Jurisdictions with Anti-Money Laundering, Combating the Financing of Terrorism, and Counter-Proliferation Finance Deficiencies
July 03, 2024
WASHINGTON—The Financial Crimes Enforcement Network (FinCEN) is informing U.S. financial institutions that the Financial Action Task Force (FATF), an intergovernmental body that establishes international standards for anti-money laundering, countering the financing of terrorism, and countering the financing of proliferation of weapons of mass destruction (AML/CFT/CPF), issued a public statement at the conclusion of its plenary meeting last month highlighting the growing financial connectivity of the Democratic People’s Republic of Korea (DPRK) with the international financial system, and reiterating the FATF’s concerns over the DPRK’s continued failure to address the significant deficiencies in its AML/CFT regime and the serious threats posed by the DPRK’s illicit activities related to the proliferation and financing of weapons of mass destruction. In order to protect the international financial system, the FATF continues to urge all jurisdictions to remain vigilant to these risks and calls for renewed implementation and enforcement of countermeasures against the DPRK.
The FATF also updated its lists of jurisdictions with strategic AML/CFT/CPF deficiencies. U.S. financial institutions should consider the FATF’s stance toward these jurisdictions when reviewing their obligations and risk-based policies, procedures, and practices.
On June 28, 2024, the FATF added Monaco and Venezuela to its list of Jurisdictions Under Increased Monitoring and also removed Jamaica and Türkiye from the list.
The FATF’s list of High-Risk Jurisdictions Subject to a Call for Action remains the same, with Iran, DPRK, and Burma subject to calls for action. Iran and DPRK are still subject to the FATF’s countermeasures, while Burma is still subject to the application of enhanced due diligence, but not countermeasures.
As part of the FATF’s listing and monitoring process to ensure compliance with its international standards, the FATF issued two statements: (1) Jurisdictions Under Increased Monitoring, which publicly identifies jurisdictions with strategic deficiencies in their AML/CFT/CPF regimes that have committed to, or are actively working with, the FATF to address those deficiencies in accordance with an agreed upon timeline; and (2) High-Risk Jurisdictions Subject to a Call for Action, which publicly identifies jurisdictions with significant strategic deficiencies in their AML/CFT/CPF regimes and calls on all FATF members to apply enhanced due diligence and, in the most serious cases, apply countermeasures to protect the international financial system from the money laundering, terrorist financing, and proliferation financing risks emanating from the identified countries.
Jurisdictions Under Increased Monitoring
With respect to the FATF-identified Jurisdictions Under Increased Monitoring, U.S. covered financial institutions are reminded of their obligations to comply with the due diligence obligations for foreign financial institutions (FFI) under 31 CFR § 1010.610(a) in addition to their general obligations under 31 U.S.C. § 5318(h) and its implementing regulations. As required under 31 CFR § 1010.610(a), covered financial institutions should ensure that their due diligence programs, which address correspondent accounts maintained for FFIs, include appropriate, specific, risk-based, and, where necessary, enhanced policies, procedures, and controls that are reasonably designed to detect and report known or suspected money laundering activity conducted through or involving any correspondent account established, maintained, administered, or managed in the United States. Furthermore, money services businesses (MSBs) have parallel requirements with respect to foreign agents or foreign counterparties, as described in FinCEN Interpretive Release 2004-1, which clarifies that the AML program regulation requires MSBs to establish adequate and appropriate policies, procedures, and controls commensurate with the risk of money laundering and the financing of terrorism posed by their relationship with foreign agents or foreign counterparties. Additional information on these parallel requirements (covering both domestic and foreign agents and foreign counterparts) may be found in FinCEN’s Guidance on Existing AML Program Rule Compliance Obligations for MSB Principals with Respect to Agent Monitoring. Such reasonable steps should not, however, put into question a financial institution’s ability to maintain or otherwise continue appropriate relationships with customers or other financial institutions, and should not be used as the basis to engage in wholesale or indiscriminate de-risking of any class of customers or financial institutions. Financial institutions should also refer to previous interagency guidance on providing services to foreign embassies, consulates, and missions.
The United Nations (UN) continues to adopt several resolutions implementing economic and financial sanctions. Member States are bound by the provisions of these UN Security Council Resolutions (UNSCRs), and certain provisions of these resolutions are especially relevant to financial institutions. Financial institutions should be familiar with the requirements and prohibitions contained in relevant UNSCRs. In addition to UN sanctions, the U.S. Government maintains a robust sanctions program. For a description of current Office of Foreign Assets Control (OFAC) sanctions programs, please consult OFAC’s Sanctions Programs and Country Information.
High-Risk Jurisdictions Subject to a Call for Action
With respect to the FATF-identified High-Risk Jurisdictions Subject to a Call for Action, Burma remains in this category, and the FATF urges jurisdictions to apply enhanced due diligence proportionate to the risks. As a general matter, FinCEN advises U.S. financial institutions to apply enhanced due diligence when maintaining correspondent accounts for foreign banks operating under a banking license issued by a country designated by an intergovernmental group or organization of which the United States is a member, as noncooperative with respect to international anti-money laundering principles or procedures, and with which designation the U.S. representative to the group or organization concurs. U.S. financial institutions should continue to consult existing FinCEN and OFAC guidance on engaging in financial transactions with Burma.
With respect to the FATF-identified High-Risk Jurisdictions Subject to a Call for Action, specifically, countermeasures, in the case of DPRK and Iran, U.S. financial institutions must comply with the extensive U.S. restrictions and prohibitions against opening or maintaining any correspondent accounts, directly or indirectly, for North Korean or Iranian financial institutions. Existing U.S. sanctions and FinCEN regulations already prohibit any such correspondent account relationships.
The Government of Iran and Iranian financial institutions remain persons whose property and interests in property are blocked under E.O. 13599 and section 560.211 of the Iranian Transactions and Sanctions Regulations (ITSR), 31 CFR Part 560. U.S. financial institutions and other U.S. persons continue to be broadly prohibited under the ITSR from engaging in transactions or dealings with Iran, the Government of Iran, and Iranian financial institutions, including opening or maintaining correspondent accounts for Iranian financial institutions. These sanctions impose obligations on U.S. persons that go beyond the relevant FATF recommendations. In addition to OFAC-administered sanctions, on October 25, 2019, FinCEN found Iran to be a Jurisdiction of Primary Money Laundering Concern and issued a final rule, pursuant to Section 311 of the USA PATRIOT Act, imposing the fifth special measure available under Section 311. This rule prohibits U.S. financial institutions from opening or maintaining correspondent accounts for, or on behalf of, an Iranian financial institution, and the use of foreign financial institutions’ correspondent accounts at covered United States financial institutions to process transactions involving Iranian financial institutions (31 CFR § 1010.661).
For jurisdictions removed from the FATF listing and monitoring process, U.S. financial institutions should take the FATF’s decisions and the reasons behind the delisting into consideration when assessing risk, consistent with financial institutions’ obligations under 31 CFR § 1010.610(a) and 31 CFR § 1010.210.
If a financial institution knows, suspects, or has reason to suspect that a transaction involves funds derived from illegal activity or that a customer has otherwise engaged in activities indicative of money laundering, terrorist financing, or other violation of federal law or regulation, the financial institution must file a Suspicious Activity Report.
FinCEN Issues Supplemental Alert on Israeli Extremist Violence in the West Bank
July 11, 2024
Today, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued a supplemental alert related to the financing of Israeli extremist settler violence against Palestinians in the West Bank. The supplemental alert builds upon FinCEN’s previous alert issued February 1, 2024, and provides additional red flags to assist U.S. financial institutions in identifying and reporting suspicious activity that finances West Bank violence. Financial institutions with questions about the content of today’s supplemental alert should contact the FinCEN Regulatory Support Section at frc@fincen.gov.
The full alert is available online at FIN-2024-Alert002.
FinCEN, OFAC, and FBI Joint Notice on Timeshare Fraud Associated with Mexico-Based Transnational Criminal Organizations
July 16, 2024
Today, the Financial Crimes Enforcement Network (FinCEN) issued a Notice to financial institutions on the methodologies, financial typologies, and red flag indicators associated with timeshare fraud orchestrated by Mexico-based transnational criminal organizations (TCOs). Mexico-based TCOs such as the Jalisco New Generation Cartel (CJNG) are increasingly targeting U.S. owners of timeshares in Mexico through complex and often yearslong telemarketing, impersonation, and advance fee schemes. They use the illicit proceeds to diversify their revenue streams and finance other criminal activities, including the manufacturing and trafficking of illicit fentanyl and other synthetic drugs into the United States. The Notice was issued jointly with Treasury’s Office of Foreign Assets Control (OFAC) and the Federal Bureau of Investigation, and published concurrently with an OFAC sanctions action against Mexican accountants and companies for their role in facilitating timeshare fraud on behalf of CJNG. Financial institutions with questions about the content of today’s joint Notice should contact FinCEN’s Regulatory Support Section at frc@fincen.gov.
FinCEN Notice (FIN-2024-NTC2): https://www.fincen.gov/sites/default/files/shared/FinCEN-Joint-Notice-Timeshare-Mexico-508C-FINAL.pdf
Treasury Press Release: https://home.treasury.gov/news/press-releases/jy2465
Interagency Statement on the Issuance of the AML/CFT Program Notices of Proposed Rulemaking
July 19, 2024
Today, FinCEN joined the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Office of the Comptroller of the Currency (together, the “Agencies”) in issuing a joint statement on the notices of proposed rulemakings that would strengthen and modernize financial institutions’ anti-money laundering and countering the financing of terrorism programs (AML/CFT Program NPRMs). The proposed amendments are based on changes to the Bank Secrecy Act as enacted by the Anti-Money Laundering Act of 2020 (the “AML Act”) and are a key component of Treasury’s objective of building a more effective and risk-based AML/CFT regulatory and supervisory regime. With the AML/CFT Program NPRMs and this joint statement, FinCEN and the Agencies are communicating their commitment to the multi-step, multi-year implementation of the AML Act in order to achieve the AML Act’s purposes of modernizing the AML/CFT regime, encouraging innovation to more effectively counter money laundering and the financing of terrorism, improving law enforcement and national security objectives, and further safeguarding the financial system from illicit activity.
FinCEN Seeks Comments on the Information to be Collected from Authorized Recipients Requesting Beneficial Ownership Information
July 22, 2024
The Department of the Treasury, on behalf of the Financial Crimes Enforcement Network (FinCEN), will publish in the Federal Register a 30-day notice pursuant to the Paperwork Reduction Act of 1995 (PRA) for beneficial ownership information requests (BOI requests). This notice follows a 60-day notice on BOI requests that FinCEN previously issued for public comment.
The 30-day notice seeks comment on the information to be collected from certain authorized recipients requesting access to beneficial ownership information, consistent with the requirements of the Beneficial Ownership Information Access and Safeguards Rule. The Corporate Transparency Act authorizes government agencies as well as financial institutions and their regulators to obtain beneficial ownership information under certain specified circumstances for national security and law enforcement purposes.
This 30-day notice gives the public an opportunity to comment on: (1) the information to be collected from certain persons requesting beneficial ownership information from FinCEN; and (2) FinCEN’s estimate of the burden involved in the information collection. Comments must be submitted by August 22, 2024.
FinCEN Issues Notice to Financial Institution Customers on Beneficial Ownership Information Requirements
July 26, 2024
Today, the Financial Crimes Enforcement Network (FinCEN) issued a notice to customers of financial institutions about reporting beneficial ownership information.
The Corporate Transparency Act requires certain entities, including many small businesses, to report to FinCEN information about the individuals who ultimately own or control them. A separate regulatory requirement currently requires many financial institutions to also collect beneficial ownership information from certain customers that seek to open accounts as part of Federal customer due diligence requirements. Today’s notice provides answers to key questions about: (1) reporting beneficial ownership information to FinCEN under the Corporate Transparency Act (https://www.fincen.gov/boi); and (2) providing beneficial ownership information to financial institutions in connection with Federal customer due diligence requirements. FinCEN encourages financial institutions to share this reference guide with customers that may be required to report beneficial ownership information.
Notice to Customers - Beneficial Ownership Information Reference Guide: https://www.fincen.gov/sites/default/files/shared/BOI-Notice-to-Customers-508FINAL.pdf
FINRA has issued a reminder notification about regulatory obligations when using generative AI and large language models. Although the notification did not provide any new interpretations of securities laws or regulations, what FINRA chose to highlight in the Notice may provide some glimpses of insight into FINRA’s emerging approach. For instance, it generally reiterated categories of concern around implementing the technology, including accuracy, privacy, bias, intellectual property – with the addition of possible exploitation by threat actors. Also, specific to using Gen AI tools for reviewing electronic correspondence, FINRA suggested that a firm’s policies and procedures should address technology governance, including model risk management, data privacy and integrity, reliability and accuracy of the AI model. The Notice explains that FINRA rules are intended to be technologically neutral and as with the deployment of any technology tool firms are responsible for having a reasonably designed supervisory system tailored to its business. The Notice also cites to recent FINRA guidance regarding AI-generated communications, and FINRA makes clear the content standards of Rule 2210 (Communications with the Public) apply regardless of whether communications are generated by a human or a technology tool.
Regulators continue to demonstrate their commitment to protecting investors by aggressively pursuing bad actors and reviewing and updating regulations to guard investors against constantly evolving threats.
The best approach to regulatory compliance is a proactive one. Staying ahead of the curve by taking note of statements and guidance released by regulators and using them as a barometer to assess the current regulatory climate can help ensure that a firm is prepared for a regulatory exam. Rather than scrambling to rectify issues or meet deadlines, a thorough, active compliance program that considers and incorporates regulatory developments is in a better position to satisfy regulators and preserve operations so they can best serve their clients.
For more information, please contact:
Mitch Avnet
p. (646) 346-2468
David Amster
p. (917) 568-6470
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