According to FINRA, Hunnicutt & Co. LLC was censured and fined $10,000 for failing to conduct independent testing of its anti-money laundering (AML) compliance program.

The firm's written AML program requires the firm to perform an independent test every two calendar years. Nonetheless, the firm failed to conduct an independent test of its AML program for over five years. After a FINRA cycle examination, the firm conducted testing of its AML program. However, the testing was not independent because it was conducted by a person who reported to the firm's designated AML compliance person.

The firm has since completed an independent test of its AML program.

Anti-money laundering programs are critical safeguards that help prevent the financial system from being used for illicit purposes such as money laundering, terrorist financing, and other financial crimes. Independent testing of AML programs is a regulatory requirement designed to ensure that these programs are functioning effectively and that any deficiencies are identified and corrected.

The independence of the testing is crucial because it provides an objective assessment of the AML program's effectiveness. When testing is conducted by someone who reports to the AML compliance person, there is an inherent conflict of interest that undermines the objectivity of the review. The AML compliance person may be reluctant to identify deficiencies in their own program, or the tester may be hesitant to report problems to their supervisor.

This case serves as a reminder that firms must not only have AML programs in place but must also ensure those programs are independently tested at the required intervals. Investors should have confidence that firms are taking appropriate steps to prevent money laundering and other financial crimes. Regular independent testing helps ensure these important protections are working as intended.