[Federal Register Volume 67, Number 45 (Thursday, March 7, 2002)]
[Notices]
[Pages 10463-10465]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-5389]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45487; File No. SR-NYSE-2002-10]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the New York Stock Exchange, Inc. To Adopt NYSE Rule 445, 
Anti-Money Laundering Compliance Program

February 28, 2002.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on February 27, 2002, the New York Stock Exchange, Inc. (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange

[[Page 10464]]

Commission (``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange proposes to adopt new NYSE Rule 445, Anti-Money 
Laundering Compliance Program. The proposed Rule requires each member 
and member organization to develop and implement an anti-money 
laundering compliance program consistent with applicable provisions of 
the Bank Secrecy Act and the regulations thereunder. The text of the 
proposed rule change is below. Proposed new language is in italics.

Anti-Money Laundering Compliance Program

    Rule 445. Each member organization and each member not associated 
with a member organization shall develop and implement a written anti-
money laundering program reasonably designed to achieve and monitor 
compliance with the requirements of the Bank Secrecy Act (31 U.S.C. 
5311, et seq.), and the implementing regulations promulgated thereunder 
by the Department of the Treasury. Each member organization's anti-
money laundering program must be approved, in writing, by a member of 
senior management.
    The anti-money laundering programs required by this Rule shall, at 
a minimum:
    (1) Establish and implement policies and procedures that can be 
reasonably expected to detect and cause the reporting of transactions 
required under 31 U.S.C. 5318(g) and the implementing regulations 
thereunder;
    (2) Establish and implement policies, procedures, and internal 
controls reasonably designed to achieve compliance with the Bank 
Secrecy Act and the implementing regulations thereunder;
    (3) Provide for independent testing for compliance to be conducted 
by member or member organization personnel or by a qualified outside 
party;
    (4) Designate, and identify to the Exchange (by name, title, 
mailing address, e-mail address, telephone number, and facsimile 
number) a person or persons responsible for implementing and monitoring 
the day-to-day operations and internal controls of the program and 
provide prompt notification to the Exchange regarding any change in 
such designation(s); and
    (5) Provide ongoing training for appropriate persons.
* * * * *

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose

Background

    On October 26, 2001, President Bush signed into law the USA PATRIOT 
Act (the ``PATRIOT Act''), which amends among other laws the Bank 
Secrecy Act as set forth in Title 31 of the United States Code (the 
``Code''). The PATRIOT Act expands government powers to fight the war 
on terrorism and requires that financial institutions,\3\ including 
broker-dealers, implement policies and procedures to that end.
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    \3\ As defined in 31 U.S.C. 5312(a)(2).
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    Title III of the PATRIOT Act, separately known as the International 
Money Laundering Abatement and Anti-Terrorist Financing Act of 2001 
(``MLAA''), focuses on the requirement that financial institutions 
establish anti-money laundering monitoring and supervisory systems. 
Specifically, MLAA Section 352, which amends Section 5318(h) of the 
Code, requires each financial institution to establish Anti-Money 
Laundering Programs by April 24, 2002 that include, at minimum: (1) the 
development of internal policies, procedures, and controls; (2) the 
designation of a compliance officer; (3) an ongoing employee training 
program; and (4) an independent audit function to test programs.
Proposed New NYSE Rule 445
Anti-Money Laundering Compliance Program: Procedural Requirements
    Proposed new NYSE Rule 445, Anti-Money Laundering Compliance 
Program (``Program''), which was developed in collaboration with NASD 
Regulation, in discussion with the Department of the Treasury, and the 
Commission, incorporates MLAA Section 352 requirements and also 
requires: (1) that the Program be in writing and approved, in writing, 
by member organizations' senior management; (2) that a designated 
``contact person'' or persons, primarily responsible for each member's 
or member organization's Program, be identified to the Exchange; and 
(3) that the Program's policies, procedures, and internal controls be 
reasonably designed to achieve compliance with applicable provisions of 
the Bank Secrecy Act and the implementing regulations thereunder, as 
they become effective.
Department of the Treasury Requirements: Filing of Suspicious Activity 
Reports
    Further, proposed NYSE Rule 445 addresses members' and member 
organizations' obligation to establish and implement policies and 
procedures that can be reasonably expected to detect and cause the 
reporting of transactions required under 31 U.S.C. 5318(g) (``Reporting 
of Suspicious Transactions'') and the implementing regulations 
thereunder. This reflects the MLAA Section 356 directive that the 
Department of the Treasury (``Treasury'') publish such implementing 
regulations, specifically applicable to registered broker-dealers, in 
the Federal Register by specified dates.
    Accordingly, the Financial Crimes Enforcement Network (``FinCEN''), 
through authority granted by the Secretary of the Treasury, filed 
proposed amendments \4\ to the Bank Secrecy Act regulations on December 
28, 2001. MLAA Section 356 requires publication of these regulations in 
final form not later than July 2, 2002.
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    \4\ ``Financial Crimes Enforcement Network; Proposed Amendments 
to the Bank Secrecy Act Regulations--Requirement of Brokers or 
Dealers in Securities to Report Suspicious Transactions;''--66 FR 
67670 (December 31, 2001).
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    Generally, FinCEN's proposed regulations require the filing of 
Suspicious Activity Reports (``SARs'') in a central location, to be 
determined by FinCEN, within a specified timeframe initiated by the 
detection of facts constituting a basis for the filing. Proposed 
reporting criteria stress the development of a sound risk-based 
program.
Ongoing Compliance
    Proposed NYSE Rule 445 also highlights members' and member 
organizations' existing and ongoing

[[Page 10465]]

obligation to comply with applicable provisions of the Bank Secrecy Act 
and the implementing regulations thereunder, as they become effective.
    Accordingly, and particularly in light of the PATRIOT Act 
amendments, members and member organizations should be cognizant of all 
existing and pending Bank Secrecy Act requirements. These include, but 
are not limited to:
    (1) MLAA Section 313 (``Prohibition on United States Correspondent 
Accounts with Foreign Shell Banks'')--Effective 12/25/01, covered 
financial institutions operating in the United States must sever 
correspondent banking relationships with foreign ``shell banks'', i.e., 
banks without a physical presence in any country, that are not 
affiliated with a bank that both has a physical presence in a country 
and is subject to supervision by a banking authority that regulates the 
affiliated bank.
    (2) MLAA Section 312 (``Special Due Diligence for Correspondent 
Accounts and Private Banking Accounts'')--Effective 7/23/02, financial 
institutions must be prepared to apply ``* * * appropriate, specific, 
and, where necessary, enhanced, due diligence'' with respect to foreign 
private banking customers and international correspondent accounts.
    (3) MLAA Section 326 (``Verification of Customer Identity'')--
Effective 10/26/02, financial institutions must comply with a 
regulation issued by the Secretary of the Treasury requiring the 
implementation of ``reasonable procedures'' with respect to the 
verification of customer identification upon opening an account, 
maintaining records of information used for such verification, and the 
consultation of a government-provided list of known or suspected 
terrorists.
    The Exchange will publish notifications to members and member 
organizations regarding the adoption and implementation of new 
regulations and address their responsibilities thereunder.
2. Statutory Basis
    The NYSE believes the proposed rule change is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange, and in particular, with 
the requirements of Sections 6(b)(5) of the Act.\5\ Section 6(b)(5) 
requires, among other things, that the rules of an exchange be designed 
to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism of a free and open market and 
national market system, and in general, to protect investors and the 
public interest.
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    \5\ 15 U.S.C. 78f(b)(5).
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    The NYSE also believes the proposed rule change is consistent with 
Section 6(c)(3)(B) of the Act.\6\ Under that Section, it is the 
Exchange's responsibility to prescribe standards for training, 
experience and competence for persons associated with Exchange members 
and member organizations. Pursuant to the statutory obligation, the 
Exchange has proposed this rule change in order to establish an 
additional mechanism for the administration of the Regulatory Element 
of the Continuing Education Program, which will enable registered 
persons to satisfy their continuing education obligations.
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    \6\ 15 U.S.C. 78f(c)(3)(B).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that the proposal does not impose any burden 
on competition not necessary or appropriate in furtherance of the 
purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    (A) by order approve such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for inspection and copying in the 
Commission's Public Reference Room. Copies of such filing will also be 
available for inspection and copying at the principal office of the 
NYSE. All submissions should refer to file number SR-NYSE-2002-10 and 
should be submitted by March 28, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-5389 Filed 3-6-02; 8:45 am]
BILLING CODE 8010-01-P