An irreverent Wall Street Blog
FINRA, FinCen, Networks, Authorities, Priorities, Statements, Guidance, AML, CFT, BSA, and NBFI
October 14, 2021
I'm told that Wall Street is a highly regulated place although I'm not quite sure just what constitutes Wall Street these days. The old Financial District in Lower Manhattan is a wisp of a memory with all the former industry tenants decamped to New Jersey, Florida, and some rack of servers in a place that defies geography. Making matters worse, we got SPACs, NFTs, cryptocurrencies, and digital assets -- and whatever newfangled product gets launched in the next hour. Hard to figure out what is and what isn't a "security," which makes it all the more difficult to figure out who gets to regulate what. Be that as it may, we still got lots of regulators: international, federal, state, and self. Where there's turf, there are turf wars. Where there's a vacuum in regulation, we have lots of politicians and publicity-hungry folks looking to step in and fill the void. In the end, we get lots of press releases but very little effective regulation.
About FINRA
Speaking of lots of press releases and ineffective regulation, we got the Financial Industry Regulatory Authority or, as it prefers, FINRA. As FINRA proclaims on its "About" website page at https://www.finra.org/about
FINRA is dedicated to protecting investors and safeguarding market integrity in a manner that facilitates vibrant capital markets.Every investor in America relies on one thing: fair financial markets. To protect investors and ensure the market's integrity, FINRA is a government-authorized not-for-profit organization that oversees U.S. broker-dealers. We work every day to ensure that everyone can participate in the market with confidence.
- every investor receives the basic protections they deserve;
- anyone who sells a securities product has been tested, qualified and licensed;
- every securities product advertisement used is truthful, and not misleading;
- any securities product sold to an investor is suitable for that investor's needs; and
- investors receive complete disclosure about the investment product before purchase.
We Play a Big RoleFINRA is authorized by Congress to protect America's investors by making sure the broker-dealer industry operates fairly and honestly. We oversee more than 624,000 brokers across the country-and analyze billions of daily market events.We use innovative AI and machine learning technologies to keep a close eye on the market and provide essential support to investors, regulators, policymakers and other stakeholders.
Oh my! How impressive!! If only there was more in the way of accomplishment and less in the way of marketing. For starters, I ain't buyin' the line that FINRA is dedicated to protecting investors and safeguarding market integrity. Wishful thinking, at best. Straining credulity even further, does FINRA truly believe that investors rely on "fair financial markets?" C'mon now, I expect more honesty from a Wall Street regulator. Savvy traders dive into Wall Street's waters armed with a shark stick and from within the confines of a shark cage. We know there's not much transparency and assume the markets are rigged. And all this goes on under the purported knowing gaze of regulators and industry compliance staff -- how can they not know? Why do they not act? If FINRA's self ascribed Congressional mandate is to "protect America's investors by making sure the broker-dealer industry operates fairly and honestly," that's just not working. Frankly, the unfairness and the dishonesty have become the costs of trading and get baked into most trading decisions.
FINRA Regulatory Notice 21-36
In FINRA's most recent Regulatory Notice, we have a distillate of all that is wrong with the current-state of Wall Street regulation. Consider this bloated headline: "Anti-Money Laundering and
Countering the Financing of
Terrorism / FINRA Encourages Firms to Consider How to Incorporate
the Government-wide Anti-Money Laundering and
Countering the Financing of Terrorism Priorities Into
Their AML Programs" (FINRA Regulatory Notice 21-36)
https://www.finra.org/sites/default/files/2021-10/Regulatory-Notice-21-36.pdf
In pertinent part under Regulatory Notice 21-36's "Summary," we have this [Ed: footnotes omitted]:
The Financial Crimes Enforcement Network (FinCEN) has issued the first government-wide priorities for anti-money laundering and countering the financing of terrorism policy, which was mandated by the Anti-Money Laundering Act of 2020 (AML Act). FinCEN also issued a statement to provide covered non-bank financial institutions (NBFIs), including broker-dealers, with guidance on how to approach the AML/CFT Priorities.FINRA is issuing this Notice to inform member firms of the AML/CFT Priorities and the Statement, and to encourage member firms to consider how to incorporate the AML/CFT Priorities into their risk-based anti-money laundering (AML) compliance programs.
Omigod, seriously? Talk about gobbledygook, doublespeak -- newspeak anyone?
The Authority
FINRA is a self-proclaimed "Authority," which begs the question as to just how a non-governmental entity became an "Authority." There are "governmental" authorities at local, state, and federal levels; and in that realm, an "Authority" is an agency or department of a government, and management is appointed by an elected official. How then does FINRA call itself an "Authority," when, at best, it's merely a self-regulatory-organization? Frankly, I never quite understood how any State accepted the FINRA corporate name as not misleading.
The Network's Priorities and Statements
On top of FINRA's dubious status as an authority, we're told that FinCEN is a "network." Not an "authority." Not a "regulator." Not a government "agency." FinCEN is a "network." And this network's acronym-like name is spelled with an uppercase "F" followed by two lowercase letters and then three uppercase letters -- how absolutely impressive that looks, no? Sort of a mash-up between "U.N.C.L.E." and "Nasdaq." And this FinCEN network has released the first-ever government wide "priorities." Not run-of-the-mill priorities but those dealing with AML and CFT -- ah yes, we are now swimming in the cesspool of acronyms! On top of FinCEN's AML/CFT priorities, we also have a "statement" covering NBFIs, and that statement references the AML/CFT priorities.
Before you get too excited about the FinCEN network's priorities and statements about AML/CFT, consider this admonition from FINRA's Regulatory Notice 21-36 [Ed: footnotes omitted]:
FinCEN has clarified that the publication of the AML/CFT Priorities does not create an immediate change in the BSA requirements or supervisory expectations for covered NBFIs, including broker-dealers. FinCEN has noted further that covered NBFIs are not required to incorporate the AML/CFT Priorities into their risk-based AML programs until the effective date of final regulations promulgated by it. The BSA, as amended by the AML Act, requires that FinCEN promulgate any appropriate regulations regarding the AML/CFT Priorities within 180 days of their establishment.
Now that's what I call one helluva clarification! The FinCEN first-ever, government-wide priorities do "not create an immediate change in the BSA requirements or supervisory expectations. . ." Yup, another acronym: "BSA" -- that's short for the Bank Secrecy Act. Moreover, the covered NBFIs are "not required to incorporate the AML/CFT Priorities" until their effective date. You wanna take a run at that? We got some network-issued priorities that don't change anything and probably shouldn't be incorporated into any AML/CFT program as of yet because we don't have an effective date for the final regulations.
Play Time
Now we take that one step from the sublime to the ridiculous. FINRA actually believes that it is somehow furthering its regulatory mission, as purportedly empowered by Congress, when it publishes a Regulatory Notice about FinCEN's issuance of priorities that don't change anything because nothing is actually effective. Wow -- talk about meaningful regulation! Of course, this comes from a self-regulator that proclaims: We Play a Big Role. Indeed you do. The thing is that FINRA doesn't quite appreciate the irony of its claim. In truth, FINRA is "play" acting. Sadly, FINRA is merely hitting its marks and dryly reciting its lines in a second-rate drama amid a dwindling audience after receiving poor notices from the critics.
Waste of Time
What's the point of FINRA's Regulatory Notice 21-36? There appears to be none. It is merely a waste of time all gussied up to seem important. How is that Notice evidence of FINRA's so-called "big role" as an effective Wall Street regulator? By its own words from its own headline, the key takeaway of the Notice is that:
FINRA Encourages Firms to Consider How to Incorporate the Government-wide Anti-Money Laundering and Countering the Financing of Terrorism Priorities Into Their AML Programs
That's effective Wall Street regulation in 2021? We have a self-regulatory "Authority" encouraging its members to "consider" how to incorporate "priorities," which were promulgated by a "network," which admonishes that those priorities do not change anything and should not actually be implemented because there's no effective date yet as required under federal law. To paraphrase the Bard, FINRA is
a poor playerThat struts and frets his hour upon the stageAnd then is heard no more. It is a taleTold by an idiot, full of sound and fury,Signifying nothing.