PART 1023—RULES FOR BROKERS OR DEALERS IN SECURITIES Authority: 12 U.S.C. 1829b and 1951-1959; 31 U.S.C. 5311-5314 and 5316-5332; title III, sec. 314, Pub. L. 107-56, 115 Stat. 307; sec. 701, Pub. L. 114-74, 129 Stat. 599. Source: 75 FR 65812, Oct. 25, 2010, unless otherwise noted. Subpart A—Definitions § 1023.100 Definitions. Refer to § 1010.100 of this chapter for general definitions not noted herein. To the extent there is a differing definition in § 1010.100 of this chapter, the definition in this section is what applies to part 1023. Unless otherwise indicated, for purposes of this part: (a) Account. (1) Account means a formal relationship with a broker-dealer established to effect transactions in securities, including, but not limited to, the purchase or sale of securities and securities loaned and borrowed activity, and to hold securities or other assets for safekeeping or as collateral. (2) Account (i) An account that the broker-dealer acquires through any acquisition, merger, purchase of assets, or assumption of liabilities; or (ii) An account opened for the purpose of participating in an employee benefit plan established under the Employee Retirement Income Security Act of 1974. (b) Broker-dealer et seq. (c) Commission (d) Customer. (1) Customer (i) A person that opens a new account; and (ii) An individual who opens a new account for: (A) An individual who lacks legal capacity; or (B) An entity that is not a legal person. (2) Customer (i) A financial institution regulated by a Federal functional regulator or a bank regulated by a state bank regulator; (ii) A person described in § 1020.315(b)(2) through (4) of this Chapter; or (iii) A person that has an existing account with the broker-dealer, provided the broker-dealer has a reasonable belief that it knows the true identity of the person. (e) Financial institution Subpart B—Programs § 1023.200 General. Brokers or dealers in securities are subject to the program requirements set forth and cross referenced in this subpart. Brokers or dealers in securities should also refer to subpart B of part 1010 of this chapter for program requirements contained in that subpart which apply to brokers or dealers in securities. § 1023.210 Anti-money laundering program requirements for brokers or dealers in securities. A broker or dealer in securities shall be deemed to satisfy the requirements of 31 U.S.C. 5318(h)(1) if the broker-dealer implements and maintains a written anti-money laundering program approved by senior management that: (a) Complies with the requirements of §§ 1010.610 and 1010.620 of this chapter and any applicable regulation of its Federal functional regulator governing the establishment and implementation of anti-money laundering programs; (b) Includes, at a minimum: (1) The establishment and implementation of policies, procedures, and internal controls reasonably designed to achieve compliance with the applicable provisions of the Bank Secrecy Act and the implementing regulations thereunder; (2) Independent testing for compliance to be conducted by the broker-dealer's personnel or by a qualified outside party; (3) Designation of an individual or individuals responsible for implementing and monitoring the operations and internal controls of the program; (4) Ongoing training for appropriate persons; and (5) Appropriate risk-based procedures for conducting ongoing customer due diligence, to include, but not be limited to: (i) Understanding the nature and purpose of customer relationships for the purpose of developing a customer risk profile; and (ii) Conducting ongoing monitoring to identify and report suspicious transactions and, on a risk basis, to maintain and update customer information. For purposes of this paragraph (b)(5)(ii), customer information shall include information regarding the beneficial owners of legal entity customers (as defined in § 1010.230 of this chapter); and (c) Complies with the rules, regulations, or requirements of its self-regulatory organization governing such programs; provided that the rules, regulations, or requirements of the self-regulatory organization governing such programs have been made effective under the Securities Exchange Act of 1934 by the appropriate Federal functional regulator in consultation with FinCEN. [81 FR 29457, May 11, 2016] § 1023.220 Customer identification programs for broker-dealers. (a) Customer identification program: minimum requirements In general. (2) Identity verification procedures. (i)(A) Customer information required. ( 1 ( 2 ( 3 ( i ( ii ( iii ( 4 ( i ( ii Note to paragraph ( a i 4 ii When opening an account for a foreign business or enterprise that does not have an identification number, the broker-dealer must request alternative government-issued documentation certifying the existence of the business or enterprise. (B) Exception for persons applying for a taxpayer identification number. (ii) Customer verification. (A) Verification through documents. ( 1 ( 2 (B) Verification through non-documentary methods. ( 1 ( 2 (C) Additional verification for certain customers. (iii) Lack of verification. (A) When the broker-dealer should not open an account; (B) The terms under which a customer may conduct transactions while the broker-dealer attempts to verify the customer's identity; (C) When the broker-dealer should close an account after attempts to verify a customer's identity fail; and (D) When the broker-dealer should file a Suspicious Activity Report in accordance with applicable law and regulation. (3) Recordkeeping. (i) Required records. (A) All identifying information about a customer obtained under paragraph (a)(2)(i) of this section, (B) A description of any document that was relied on under paragraph (a)(2)(ii)(A) of this section noting the type of document, any identification number contained in the document, the place of issuance, and if any, the date of issuance and expiration date; (C) A description of the methods and the results of any measures undertaken to verify the identity of a customer under paragraphs (a)(2)(ii)(B) and (C) of this section; and (D) A description of the resolution of each substantive discrepancy discovered when verifying the identifying information obtained. (ii) Retention of records. (4) Comparison with government lists. (5)(i) Customer notice. (ii) Adequate notice. (iii) Sample notice. Important Information About Procedures for Opening a New Account To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account. What this means for you: When you open an account, we will ask for your name, address, date of birth and other information that will allow us to identify you. We may also ask to see your driver's license or other identifying documents. (6) Reliance on another financial institution. (i) Such reliance is reasonable under the circumstances; (ii) The other financial institution is subject to a rule implementing 31 U.S.C. 5318(h), and regulated by a Federal functional regulator; and (iii) The other financial institution enters into a contract requiring it to certify annually to the broker-dealer that it has implemented its anti-money laundering program, and that it will perform (or its agent will perform) specified requirements of the broker-dealer's CIP. (b) Exemptions. (c) Other requirements unaffected. Subpart C—Reports Required To Be Made By Brokers or Dealers in Securities § 1023.300 General. Brokers or dealers in securities are subject to the reporting requirements set forth and cross referenced in this subpart. Brokers or dealers in securities should also refer to subpart C of part 1010 of this chapter for reporting requirements contained in that subpart which apply to brokers or dealers in securities. § 1023.310 Reports of transactions in currency. The reports of transactions in currency requirements for brokers or dealers in securities are located in subpart C of part 1010 of this chapter and this subpart. § 1023.311 Filing obligations. Refer to § 1010.311 of this chapter for reports of transactions in currency filing obligations for brokers or dealers in securities. § 1023.312 Identification required. Refer to § 1010.312 of this chapter for identification requirements for reports of transactions in currency filed by brokers or dealers in securities. § 1023.313 Aggregation. Refer to § 1010.313 of this chapter for reports of transactions in currency aggregation requirements for brokers or dealers in securities. § 1023.314 Structured transactions. Refer to § 1010.314 of this chapter for rules regarding structured transactions for brokers or dealers in securities. § 1023.315 Exemptions. Refer to § 1010.315 of this chapter for exemptions from the obligation to file reports of transactions in currency for brokers or dealers in securities. § 1023.320 Reports by brokers or dealers in securities of suspicious transactions. (a) General. (2) A transaction requires reporting under the terms of this section if it is conducted or attempted by, at, or through a broker-dealer, it involves or aggregates funds or other assets of at least $5,000, and the broker-dealer knows, suspects, or has reason to suspect that the transaction (or a pattern of transactions of which the transaction is a part): (i) Involves funds derived from illegal activity or is intended or conducted in order to hide or disguise funds or assets derived from illegal activity (including, without limitation, the ownership, nature, source, location, or control of such funds or assets) as part of a plan to violate or evade any Federal law or regulation or to avoid any transaction reporting requirement under Federal law or regulation; (ii) Is designed, whether through structuring or other means, to evade any requirements of this chapter or of any other regulations promulgated under the Bank Secrecy Act; (iii) Has no business or apparent lawful purpose or is not the sort in which the particular customer would normally be expected to engage, and the broker-dealer knows of no reasonable explanation for the transaction after examining the available facts, including the background and possible purpose of the transaction; or (iv) Involves use of the broker-dealer to facilitate criminal activity. (3) The obligation to identify and properly and timely to report a suspicious transaction rests with each broker-dealer involved in the transaction, provided that no more than one report is required to be filed by the broker-dealers involved in a particular transaction (so long as the report filed contains all relevant facts). (b) Filing procedures What to file. (2) Where to file. (3) When to file. (c) Exceptions. (i) A robbery or burglary committed or attempted of the broker-dealer that is reported to appropriate law enforcement authorities, or for lost, missing, counterfeit, or stolen securities with respect to which the broker-dealer files a report pursuant to the reporting requirements of 17 CFR 240.17f-1; (ii) A violation otherwise required to be reported under this section of any of the Federal securities laws or rules of an SRO by the broker-dealer or any of its officers, directors, employees, or other registered representatives, other than a violation of 17 CFR 240.17a-8 or 17 CFR 405.4, so long as such violation is appropriately reported to the SEC or an SRO. (2) A broker-dealer may be required to demonstrate that it has relied on an exception in paragraph (c)(1) of this section, and must maintain records of its determinations to do so for the period specified in paragraph (d) of this section. To the extent that a Form RE-3, Form U-4, or Form U-5 concerning the transaction is filed consistent with the SRO rules, a copy of that form will be a sufficient record for purposes of this paragraph (c)(2). (3) For the purposes of this paragraph (c) the term “Federal securities laws” means the “securities laws,” as that term is defined in section 3(a)(47) of the Securities Exchange Act of 1934, 15 U.S.C. 78c(a)(47), and the rules and regulations promulgated by the Securities and Exchange Commission under such laws. (d) Retention of records. (e) Confidentiality of SARs. (1) Prohibition on disclosures by brokers or dealers in securities. General rule. (ii) Rules of construction. (A) The disclosure by a broker-dealer, or any director, officer, employee, or agent of a broker-dealer, of: ( 1 ( 2 ( i ( ii (B) The sharing by a broker-dealer, or any director, officer, employee, or agent of the broker-dealer, of a SAR, or any information that would reveal the existence of a SAR, within the broker-dealer's corporate organizational structure for purposes consistent with Title II of the Bank Secrecy Act as determined by regulation or in guidance. (2) Prohibition on disclosures by government authorities. (3) Prohibition on disclosures by Self-Regulatory Organizations. (f) Limitation on liability. (g) Compliance. (h) Applicability date. [75 FR 65812, Oct. 26, 2010, as amended at 76 FR 10519, Feb. 25, 2011; 81 FR 76865, Nov. 4, 2016] Subpart D—Records Required To Be Maintained by Brokers or Dealers in Securities § 1023.400 General. Brokers or dealers in securities are subject to the recordkeeping requirements set forth and cross referenced in this subpart. Brokers or dealers in securities should also refer to subpart D of part 1010 of this chapter for recordkeeping requirements contained in that subpart which apply to brokers or dealers in securities. § 1023.410 Additional records to be made and retained by brokers or dealers in securities. (a)(1) With respect to each brokerage account opened with a broker or dealer in securities after June 30, 1972, and before October 1, 2003, by a person residing or doing business in the United States or a citizen of the United States, such broker or dealer shall within 30 days from the date such account is opened, secure and maintain a record of the taxpayer identification number of the person maintaining the account; or in the case of an account of one or more individuals, such broker or dealer shall secure and maintain a record of the social security number of an individual having a financial interest in that account. In the event that a broker or dealer has been unable to secure the identification required within the 30-day period specified, it shall nevertheless not be deemed to be in violation of this section if: It has made a reasonable effort to secure such identification, and it maintains a list containing the names, addresses, and account numbers of those persons from whom it has been unable to secure such identification, and makes the names, addresses, and account numbers of those persons available to the Secretary as directed by him. Where a person is a non-resident alien, the broker or dealer in securities shall also record the person's passport number or a description of some other government document used to verify his identity. (2) The 30-day period provided for in paragraph (a)(1) of this section shall be extended where the person opening the account has applied for a taxpayer identification or social security number on Form SS-4 or SS-5, until such time as the person maintaining the account has had a reasonable opportunity to secure such number and furnish it to the broker or dealer. (3) A taxpayer identification number for a deposit or share account required under paragraph (a)(1) of this section need not be secured in the following instances: (i) Accounts for public funds opened by agencies and instrumentalities of Federal, state, local, or foreign governments, (ii) Accounts for aliens who are ambassadors, ministers, career diplomatic or consular officers, or naval, military or other attaches of foreign embassies, and legations, and for the members of their immediate families, (iii) Accounts for aliens who are accredited representatives to international organizations which are entitled to enjoy privileges, exemptions, and immunities as an international organization under the International Organizations Immunities Act of December 29, 1945 (22 U.S.C. 288), and for the members of their immediate families, (iv) Aliens temporarily residing in the United States for a period not to exceed 180 days, (v) Aliens not engaged in a trade or business in the United States who are attending a recognized college or university or any training program, supervised or conducted by any agency of the Federal Government, and (vi) Unincorporated subordinate units of a tax exempt central organization which are covered by a group exemption letter. (b) Every broker or dealer in securities shall, in addition, retain either the original or a microfilm or other copy or reproduction of each of the following: (1) Each document granting signature or trading authority over each customer's account; (2) Each record described in 17 CFR 240.17a-3(a)(1), (2), (3), (5), (6), (7), (8), and (9); (3) A record of each remittance or transfer of funds, or of currency, checks, other monetary instruments, investment securities, or credit, of more than $10,000 to a person, account, or place, outside the United States; (4) A record of each receipt of currency, other monetary instruments, checks, or investment securities and of each transfer of funds or credit, of more than $10,000 received on any one occasion directly and not through a domestic financial institution, from any person, account or place outside the United States. Subpart E—Special Information Sharing Procedures To Deter Money Laundering and Terrorist Activity § 1023.500 General. Brokers or dealers in securities are subject to the special information sharing procedures to deter money laundering and terrorist activity requirements set forth and cross referenced in this subpart. Brokers or dealers in securities should also refer to subpart E of part 1010 of this chapter for special information sharing procedures to deter money laundering and terrorist activity contained in that subpart which apply to brokers or dealers in securities. § 1023.520 Special information sharing procedures to deter money laundering and terrorist activity for brokers or dealers in securities. (a) Refer to § 1010.520 of this chapter. (b) [Reserved] § 1023.530 [Reserved] § 1023.540 Voluntary information sharing among financial institutions. (a) Refer to § 1010.540 of this chapter. (b) [Reserved] Subpart F—Special Standards of Diligence; Prohibitions; and Special Measures for Brokers or Dealers in Securities § 1023.600 General. Brokers or dealers in securities are subject to the special standards of diligence; prohibitions; and special measures requirements set forth and cross referenced in this subpart. Brokers or dealers in securities should also refer to subpart F of part 1010 of this chapter for special standards of diligence; prohibitions; and special measures contained in that subpart which apply to brokers or dealers in securities. § 1023.610 Due diligence programs for correspondent accounts for foreign financial institutions. (a) Refer to § 1010.610 of this chapter. (b) [Reserved] § 1023.620 Due diligence programs for private banking accounts. (a) Refer to § 1010.620 of this chapter. (b) [Reserved] § 1023.630 Prohibition on correspondent accounts for foreign shell banks; records concerning owners of foreign banks and agents for service of legal process. (a) Refer to § 1010.630 of this chapter. (b) [Reserved] § 1023.640 [Reserved] § 1023.670 Summons or subpoena of foreign bank records; termination of correspondent relationship. (a) Refer to § 1010.670 of this chapter. (b) [Reserved]