January 26, 2012
Re: Implementation of the SEC’s Request to SEC-Registered FINRA Member Broker-Dealers1
Dear Mr. Ketchum:
The Financial Crimes Enforcement Network (“FinCEN”) issued a final rule (effective January 3, 2011) amending the Bank Secrecy Act (“BSA”) regulations regarding the confidentiality of suspicious activity reports (“SARs”).2 FinCEN amended its regulations to, among other things, require a broker-dealer to make SARs and all supporting documentation available to any self-regulatory organization (“SRO”) that examines the broker-dealer for compliance with the requirements of 31 C.F.R § 1023.320 (the “SAR Rule”), upon the request of the SEC.3
The SEC, in accordance with the SAR Rule, requests all SEC-Registered, Financial Industry Regulatory Authority, Inc. (“FINRA”) member broker-dealers that are subject to examination by FINRA for compliance with the requirements of the SAR Rule make SARs and supporting documentation as well as any information that would reveal the existence of a SAR or any decision to not file a SAR (collectively “SAR Materials”) available to FINRA. The SEC’s request applies to all FINRA member broker-dealers and applies to requests in connection with FINRA’s examinations and investigations, as well as in connection with FINRA’s risk assessment effort within its examination program, provided that FINRA takes all appropriate steps to ensure that the SAR, or the existence of a SAR, is kept confidential throughout its enforcement and investigatory processes.
The SEC expects FINRA to implement the SEC’s request in accordance with the SAR Rule. In an open letter to SEC registered, FINRA member broker-dealers issued on January 26, 2012, the Office of Compliance Inspections and Examinations instructed broker-dealers to contact SEC staff via the SEC SAR Alert Message Line at 202-551-SARS (7277) should they have any concerns regarding FINRA’s implementation of the SEC’s request.4 FINRA is required to fulfill its responsibilities under the BSA and the SAR Rule to protect the confidentiality of SAR Materials, mindful of the fact that unauthorized sharing of SAR Materials is illegal and could result in criminal and/or civil sanctions.5
By the Commission.
Elizabeth M. Murphy
1 The Commission is issuing its request regarding FINRA member broker-dealers in the form of this letter to FINRA for FINRA to share with its members as needed.
2 Financial Crimes Enforcement Network: Confidentiality of Suspicious Activity Reports, 31 C.F.R. § 1023.320 (formerly 31 C.F.R. § 103.19), http://edocket.access.gpo.gov/2010/pdf/2010-29869.pdf . Effective March 1, 2011, FinCEN reorganized the BSA’s implementing regulations into a new chapter within title 31. As part of this reorganization, FinCEN moved the regulations reflected in 31 C.F.R. Part 103 into 31 C.F.R. Chapter X. See 75 Fed. Reg. 65,806 (October 26, 2010).
3 See Department of Treasury Release, Financial Crimes Enforcement Network: Confidentiality of Suspicious Activity Reports, 75 Fed. Reg. 75,593 at 75,597 (Dec. 3, 2010) (“This request may apply to the SRO in an isolated context or in a broad context to cover a variety of situations and understood uses, as determined appropriate by that agency. FinCEN expects the Federal agency responsible for the SRO’s oversight to provide this request either to the institution in writing, or to the SRO in the form of a writing that is available for the SRO to share with the institution.”).
4 Open Letter to CEOs of All SEC-Registered, FINRA Member Broker-Dealers dated January 26, 2012; at www.sec.gov.
5 31 C.F.R. § 1023.320 (e)(3) Any SRO registered with the SEC, or any director, officer, employee, or agent shall not disclose a SAR, or any information that would reveal the existence of a SAR except as necessary to fulfill self-regulatory duties with the consent of the SEC.