According to FINRA, Financial Security Management, Incorporated was censured and fined $25,000 for failing to establish and implement policies, procedures, and internal controls reasonably designed to achieve compliance with the Bank Secrecy Act (BSA) and implementing regulations.

The firm lacked reasonable procedures to ensure timely review of and response to information requests from the Financial Crimes Enforcement Network (FinCEN). The firm failed to search its records in response to any FinCEN requests. The firm's written procedures failed to designate a responsible person by name or title, did not explain steps for searching firm records in response to requests, and did not state how searches should be documented. While the firm designated an employee to complete searches, that employee failed to do so, and the firm had no process for verifying completion. The firm has since updated its procedures and systems to address FinCEN request compliance.

FINRA also found the firm failed to conduct adequate annual independent testing of its AML compliance program. Although the firm conducted annual testing, the individual who performed it reported to the firm's AML compliance officer and therefore was not independent. This individual also lacked training and experience concerning BSA requirements and regulations. The firm failed to conduct a risk-based review of its full AML program, limiting testing to a random sample of accounts for know-your-customer and Customer Identification Program compliance without reviewing other AML processes. The firm has since engaged a qualified outside party to perform annual AML testing.

This case illustrates the critical importance of robust anti-money laundering programs to combat financial crimes. Firms must maintain independent testing of AML programs and respond promptly to law enforcement information requests. Investors benefit from strong AML programs that help ensure the integrity of financial markets.