Financial Industry Regulatory Authority (FINRA) Practice Exam

What is the primary purpose of anti-money laundering regulations for broker-dealers?

1. Promote fair market practices

2. Prevent fraudulent transactions

3. Detect and report suspicious activities

4. Ensure compliance with tax obligations

The correct answer is: Detect and report suspicious activities

The primary purpose of anti-money laundering (AML) regulations for broker-dealers is to detect and report suspicious activities. These regulations are established to help identify potential money laundering and terrorist financing activities. Broker-dealers play a crucial role in the financial system and are positioned to observe unusual patterns or transactions that may indicate illicit activity. By requiring broker-dealers to implement robust AML programs, which include monitoring transactions, conducting customer due diligence, and filing Suspicious Activity Reports (SARs) when necessary, the regulations aim to prevent the financial system from being exploited by criminals. This not only protects the integrity of financial markets but also aids law enforcement in combating financial crimes. While promoting fair market practices, preventing fraudulent transactions, and ensuring compliance with tax obligations are significant considerations in their regulatory framework, the central intent of AML regulations is specifically geared towards the identification and reporting of suspicious activities related to money laundering.