Series 63

Business Practices - Bank Secrecy Act (BSA) and Compensation

Currency Transaction Reports (CTRs)
Under the Bank Secrecy Act (BSA), (enacted to aid in identifying the source, volume, and movement of currency in and/or out of the United States or deposited in financial institutions), firms are required to file a CTR for any cash transactions over $10,000.
In order to identify potentially fraudulent activity, banks are also required to maintain records of any funds transferred in the amount of $3,000 and above. Many banks will use software that aids in discovering suspicious activity, especially in larger banks where thousands of transactions are performed daily.

In addition, these reports include structured transactions, where a number of small transactions totaling $10,000 or more have been made over a short period of time. This activity often occurs when an individual is attempting to avoid the $10,000 reporting requirement.

This information is reported on FinCEN Form 104. FinCEN itself is a bureau of the U.S Treasury and is the delegated administrator of the BSA.


Suspicious Activity Reporting
These reports, as required by the BSA, should be filed for:


  • Criminal violations involving insider abuse.
  • Criminal violations for $5,000+, when suspect is identified.
  • Criminal violations for $25,000+, even when no suspect is identified.
  • Transactions for $5,000+, if the bank or affiliate knows, suspects or has reason to suspect the transaction:
  • may involve potential money laundering, terrorism financing or other illegal activity,
  • is designed to evade the BSA,
  • has no apparent business or lawful purpose or seems odd when compared to the customer's normal activities, and there is no reasonable explanation after examining the facts.
Suspicious activities are often difficult to detect since they are designed to avoid detection. Some examples of suspicious activities include:

  • customers who are uninterested in investment products that offer lower fees and higher returns,
  • customers who supply inaccurate, false or suspicious information,
  • customers with known criminal backgrounds, who begin to conduct numerous transactions or
  • customers who wire funds into an account, then immediately request to redirect funds to another institution, city or country.
Compensation
As stated already, agents and/or advisers may not participate in percentage gains of an account except under certain circumstances:


  • Agents may participate in gains of an account, if the account is equally (dually) owned by the agent and client, and is approved by the broker-dealer. What's more, the agent must equally participate in any losses that occur.
  • Investment Advisers may not participate in "performance-based fees" unless the client is:
    • an institutional investor,
    • a private client with a minimum net worth of $2. million or
    • a private client with a minimum of $1,000,000 invested with the adviser.
Look Out!
Participating in performance fees is mentioned twice in the study guide, and is quite likely to appear on the exam.


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