CSG Law Alert: In Case You Missed It ….
We have summarized below a few recent broker-dealer-related news items you might have missed.
FinCEN clarifies firms’ anti-money laundering obligations.
On October 9, FinCEN issued a series of FAQs, linked here, regarding financial institutions’ suspicious activity reporting (“SAR”) requirements, which included several important clarifications concerning the scope of broker-dealers’ anti-money laundering (“AML”) obligations.
First, FinCEN clarified that financial institutions are not required to conduct a review of every account following the filing of a SAR to determine whether suspicious activity has continued. Instead, FinCEN said that firms may rely on “risk-based internal policies, procedures, and controls to monitor and report suspicious activity as appropriate[.]”
Second, FinCEN stated that financial institutions are “encouraged” but not required to document a decision not to file a SAR.
Finally, FinCEN made clear that a financial institution’s system for monitoring for potentially suspicious activity “should be commensurate with” the institution’s level of money laundering and terrorist financing risk.
This last point, in particular, may have broader implications for regulators’ enforcement actions. It has become increasingly common for regulators such as FINRA to sanction financial institutions for technical failings of a firm’s AML program, even if such failings did not contribute to any enhanced risk of actual money laundering or terrorist financing. This most recent guidance suggests that FinCEN is skeptical of such expansive interpretations of its rules.
FINRA announces a new sweep (and doesn’t announce another).
On October 23, FINRA posted a new sweep letter on its website. The letter, a copy of which can be found here, seeks information from firms that participated as underwriters, selling group members, or placement agents (among others) in small-cap offerings of foreign-based issuers between January 2023 and September 2025. The sweep appears to be a continuation of FINRA’s recent focus on potentially manipulative trading in the stocks of foreign-based, small-cap issuers, particularly China-based issuers. It also is consistent with the SEC’s recent creation of a new cross-border task force focused on potential market manipulation—including “pump-and-dump” and “ramp-and-dump” schemes—involving the stocks of foreign-based issuers.
Relatedly, although it is not one of the sweeps posted on FINRA’s website, FINRA has sent a number of broker-dealers requests for information regarding “Clone ETFs.” FINRA appears to be investigating whether firms permitted brokers to recommend certain mutual funds when cheaper, nearly identical ETFs (i.e., “Clone ETFs”) were available.
FINRA clarifies that the Gifts Rule does not prohibit gifts to retail investors.
Earlier this year, FINRA announced proposed changes to Rule 3220 (the “Gifts Rule”), including raising the $100 gift limit to $250. FINRA also proposed adding a statement, set forth in the proposed supplementary material, clarifying that Rule 3220 does not apply to gifts from a member or an associated person to individual retail customers. FINRA stated that it proposed adding this clarification even though the Gifts Rule does not, by its terms, apply to such gifts, because FINRA staff are aware that there has been some “misunderstanding” about the scope of the Rule.1
In short, currently, the Gifts Rule does not apply to gifts from brokers to retail customers. Of course, there may be other reasons why a broker-dealer should monitor such “gifts.” For example, such payments may be evidence of potential unethical behavior prohibited by FINRA Rule 2010, such as sharing in customer losses. Firms also still must comply with FINRA’s non-cash compensation rules—i.e., FINRA Rules 2310, 2320, 2341, and 5110.
1 See Text of Proposed Rule Change, SR-FINRA-2025-003, at 21-22.