NASD Announces Amendments to Anti-Money
Laundering Compliance Program Rule

Effective March 6, 2006, NASD member firms must comply with amendments to NASD Rule 3011 Anti-Money Laundering (AML) Compliance Program, and the adoption of IM-3011-1 and IM-3011-2. Ultimately, the amendments and new interpretive materials provide an much needed exemption for some firms to complete an annual independent test of its AML compliance program, and clarify the persons not considered to be independent for purposes of the independent testing requirement.

For broker/dealers that do not execute brokerage transactions for customers or otherwise hold customer accounts or act as an introducing broker with respect to customer accounts, independent testing will be required every two years (on a calendar-year basis), rather than annually.

Additionally, the NASD has provided a clearer definition of “independent” for smaller broker/dealers. As before, the person conducting the independent test must have a working knowledge of applicable requirements under the Bank Secrecy Act and its implementing regulations, and to ensure independence, the testing cannot be conducted by the AML compliance person, by any person who performs the AML functions being tested or by any person who reports to any of these persons. However, the tests may be conducted by persons who report to either the AML compliance person or persons performing AML functions if (1) the broker/dealer has no other qualified personnel to conduct the test; (2) the broker/dealer establishes written policies and procedures to address potential conflicts (e.g., anti-retaliation procedures); (3) to the extent possible, the results of the test are reported to someone senior to the person to whom the test conductor reports; and (4) the broker/dealer documents its rationale for determining that it has no other alternative than to comply in this manner. In addition, if the person does not report the results to a person senior to the AML compliance person or persons performing AML functions, the member must document a reasonable explanation for not doing so.

The amendment to Rule 3011(d) also states that the individual responsible for implementing and monitoring the day-to-day operations and internal controls of the AML program must be an “associated person” of the member firm.