The securities sector does not share information in the same way as banks. Social media companies creating crypto need heavy money laundering: FinCEN
A senior official with the country’s Financial Crime Compliance Monitoring Panel said that the securities sector by and large does not share information about potential threats on a par with banks. On top of that, social media companies that manufacture crypto coins must take strict compliance countermeasures.
These are two of the key points that Jamal El-Hindi, Assistant Director of the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN), Administrator of Anti-Money Laundering Regulations, at the Securities Industry and Financial Markets Association (SIFMA), addressed. 20th Conference on Combating Money Laundering and Financial Crime.
El-Hindi pointed out that a much smaller percentage of trading companies are taking advantage of the powers and safe havens of the Patriot Act Section 314 (b), which allows certain financial institutions to obtain information about individuals suspected of money laundering and terrorist financing and in exchanging eyes on many precursor crimes, including fraud.
It’s also clear that FinCEN is concerned about one of the darkest areas of the securities industry: omnibus accounts.
Depending on the temporarily weakened structures in the broker-dealer area, certain accounts can have blind spots. For example, omnibus accounts allow “more than one person to manage transactions and the anonymity of the people on the account”.
Although FinCEN does not name individual companies, it is well aware of the efforts of social media giants like Facebook to create their own cryptocurrencies and the potential for criminals to switch to a new technology that can make money quickly, easily, internationally and internationally Can move With such small amounts, compliance teams would hardly get a cautious look.
The office has also worked closely with the Paris-based Sector Standard Setter, the Financial Action Task Force (FATF), to put stricter requirements on crypto firms to identify, screen, and risk users – and to create a mechanism , which can be used to share this information with related exchanges and even stationary banking connections in the real world, which the industry calls the crypto travel rule.
The areas highlighted by El-Hindi provide an insight into the future priorities of compliance with legal regulations and the current weaknesses that are being exploited by illegal actors.
Here are some snapshots:
Exchange of information between trading companies
The complexity of the transactions and relationships in your area makes transparency a challenge.
And when we talk about the concept of “knowing your customer” we need to recognize that the culture of a highly competitive industry may, if it could, prevent the exchange of customer information for the purpose of combating money laundering or other financial crime prevention lose a customer to a competitor.
I think this dynamic continues to make your sector challenging from an AML regulation perspective.
Currently, around 40 percent of custodians are registered to participate in business-to-business information exchanges through the 314 (b) program. In comparison, only 14 percent of all securities companies that are eligible to register for this important information exchange mechanism do so.
Here is my question for you: Does this lower registration rate reflect a culture that is more fearful of information sharing in your competitive environment?
We are confident that at a time when we all recognize the importance of an appropriate exchange of information, your companies will work towards sharing more information with each other, either bilaterally or through 314 (b) associations, to eradicate illegal activities. At the same time, you need to figure out how to protect the information you share from stealing each other’s customers.
Exchange of information between supervisory authorities and investigators
FinCEN has always promoted this coordination and continues to do so. This is especially important as enforcement initiatives and improved compliance in one part of the financial sector can result in illegal activity migrating to other sectors.
We have seen bad activity migrate from the banking sector to the capital markets. We have also seen a migration of bad activity from your sector to the banking sector.
Only through cross-agency coordination on these issues can any regulator do its best to advise and monitor its constituents.
Recently, FinCEN, SEC and FINRA staff have teamed up with banking regulators to discuss the possible migration of specific illegal activities into the banking sector following a closer scrutiny by securities regulators of offshore brokers trying to Omnibus use accounts for illegal purposes.
It is an example of the kind of cross-regulatory awareness and focus that is required to keep up with the various new methods that illegal actors are using to try to abuse the financial system.
Crypto AML obligations
Let me take this opportunity to emphasize that actors working in these new value creation systems are subject to the same AML principles and requirements as other financial institutions.
Social media and messaging platforms, as well as others now focused on setting up cryptocurrencies, cannot ignore illegal transactions that they may promote.
As we have said on other occasions, to the extent that the financial sector seeks to advance the opportunities that some of these new systems offer, we are not going to allow them to have the protection and adequate transparency that we have , slipping backwards collectively worked so hard to weave into the financial system.
We will assess and report on emerging financial institutions on whether and how they are making their systems resilient to money laundering, terrorist financing, sanctions evasion, human and drug trafficking and other illegal activities.
Make no mistake, be it through existing rules and guidelines or future rules and guidelines, we will regulate in this area in accordance with the existing principles underlying the BSA / AML regime.
Industry needs to develop its new products and services to ensure adequate transparency for law enforcement and national security purposes. And where this doesn’t happen, we can protect our financial system (via FinCEN).
Monroe’s considerations: FinCEN is under heavy pressure to better identify and fill gaps in the country’s overall defense.
This includes, in the areas of money laundering regulations, the exchange of public and private information, tailor-made information gathering and assistance with law enforcement investigations, one of the main tasks of FinCEN in the management of the database, in which all reports of suspicious activity and currency transactions are located.
However, FinCEN must also work with other federal regulators and investigators in key financial sectors such as securities, an area that has been ripe for stock scammers, penny stock suppliers, and Ponzi schemers big and small over the past decade.