FINRA (Financial Industry Regulatory Authority) is a self-regulatory organisation (SRO) in the United States that oversees broker-dealer firms and their registered representatives, under the supervision of the U.S. Securities and Exchange Commission (SEC). Although not a government agency, FINRA plays a pivotal role in supervising how securities firms detect, report, and prevent financial crime, including money laundering and terrorist financing, under rules such as FINRA Rule 3310.

Effective AML compliance among broker-dealers largely depends on adhering to FINRA’s standards. By setting expectations for written AML programmes, suspicious activity monitoring, risk-based due diligence, and independent testing, FINRA ensures that the financial services industry remains vigilant, accountable, and aligned with U.S. federal law.

Definition Of FINRA

FINRA, or the Financial Industry Regulatory Authority, is a U.S. self-regulatory organisation responsible for writing and enforcing rules, examining member firms, and ensuring broker-dealer compliance with federal securities and anti-money laundering laws.

Founded in 2007 through the consolidation of the National Association of Securities Dealers (NASD) and regulatory functions of the NYSE, FINRA oversees roughly 3,300 brokerage firms and hundreds of thousands of financial professionals. Its mission is safeguarding investor interests and market integrity through regulation, enforcement, brokerage licensing, dispute resolution, and educational initiatives.

How FINRA Enforces AML Compliance

FINRA plays a central role in AML oversight through its Rule 3310, which mandates that member firms establish and maintain writing, risk-based AML compliance programmes.

Rule 3310 stipulates that each firm must have a board-approved program that:

• Detects and reports suspicious transactions.

• Ensures compliance with the Bank Secrecy Act and related regulations.

• Includes independent testing of the programme each year (or every two years in limited cases).

• Designates a named AML compliance officer.

• Provides ongoing training to staff.

• Conducts risk-based ongoing customer due diligence and monitoring, including beneficial ownership tracking

Thus, FINRA ensures that member firms have robust, tested frameworks capable of identifying, evaluating, and escalating suspicious activity.

Why FINRA Is Important For AML Compliance

FINRA's oversight enhances the AML financial crime framework in several pivotal ways.

Regulatory Integration

FINRA implements federal AML requirements on broker-dealers, seamlessly integrating with the SEC oversight regime.

Risk-Based Governance

FINRA enforces the development of risk-based customer profiles and monitoring, aligning with global standards like FATF recommendations.

Accountability & Testing

By requiring independent testing and a dedicated AML officer, FINRA ensures that governance and accountability are embedded in firms’ operations.

Enforcement

Weak AML controls can lead to enforcement actions by FINRA, including fines and sanctions, and regulatory probes, such as their recent investigation of Morgan Stanley’s client risk practices.

Key Components Under FINRA AML Rule 3310

FINRA AML compliance programmes must include several critical elements:

Written Policies and Procedures

Firms must have documented protocols for detecting and reporting suspicious activity.

Senior Management Approval

Final AML programme documents must be explicitly approved by senior leadership.

Independent Testing

Regular testing must be conducted by a qualified person independent of AML operations.

Designated AML Compliance Officer

Each firm must identify and report a specific individual responsible for compliance.

Ongoing Training

Regular, relevant AML training must be provided to appropriate staff.

Customer Due Diligence

Ongoing monitoring and beneficial owner identification for entity clients are required. These components ensure integrity, responsiveness, and accountability in anti-financial crime efforts.

Challenges And Enforcement Cases

While FINRA upholds compliance standards, member firms face practical challenges:

• Complexity of AML Compliance: Broker-dealers must build AML programmes that fit BSA requirements, SEC oversight, and FINRA rules.

• Operational Burden: Smaller firms may struggle with the resources needed to maintain extensive AML monitoring and testing.

• Enforcement Risk: Failure to meet AML standards exposes firms to investigations and penalties. For example, FINRA is probing Morgan Stanley's client screening practices for high-risk customers.

Best Practices Under FINRA Oversight

Firms can align with FINRA expectations effectively by:

• Documenting Risk-Based Programmes: Ensure corporate policies reflect customer, product, and geography risks.

• Testing Regularly: Schedule annual independent reviews of AML systems.

• Training Staff Continuously: Align training with emerging threats and regulatory updates.

• Reporting Designated Officers: Keep FINRA updated on AML compliance personnel.

• Adapting to Regulations: Incorporate evolving priorities like those in FinCEN’s AML/CFT guidance promptly.

By building programmes in line with FINRA Rule 3310, firms reinforce compliance infrastructure and reduce enforcement risk.