Making Sense of the Financial Industry Regulatory Authority (FINRA) Rulebook for Sanctions Compliance

Compliance officers at financial institutions often face an uphill battle: keeping pace with ever-evolving regulations while ensuring daily operations run smoothly. Among the alphabet soup of regulators and frameworks—OCC, SEC, OFAC, FATF—one that consistently shapes obligations for broker-dealers and other financial firms is the Financial Industry Regulatory Authority (FINRA).

While FINRA is primarily known for its role in regulating broker-dealers, enforcing fair practices, and protecting investors, its rulebook has direct implications for sanctions compliance and anti-money laundering (AML) checks. Ignoring those obligations is not just a regulatory risk; it exposes firms to hefty fines, reputational damage, and potential criminal liability.

This article breaks down how FINRA rules intersect with sanctions compliance, what compliance officers at financial institutions need to know, and how to operationalize these requirements in practice.

Understanding FINRA’s Role in Compliance

FINRA is a self-regulatory organization (SRO) authorized by Congress to oversee U.S. broker-dealers. It operates under the oversight of the SEC, but unlike some regulators, FINRA is funded by the industry and enforces its own rulebook.

For compliance professionals, FINRA is more than just an industry watchdog. It sets expectations for:

• Know Your Customer (KYC) obligations
  
  
• AML program requirements (through Rule 3310)
  
  
• Supervisory structures for financial institutions
  
  
• Sanctions screening alignment with OFAC, the U.S. Treasury’s Office of Foreign Assets Control

The takeaway: while FINRA doesn’t publish its own sanctions lists, its rules obligate firms to implement controls that ensure customers, transactions, and counterparties are screened against sanctions lists and monitored for suspicious activity.

Key FINRA Rules That Impact Sanctions and AML

FINRA Rule 3310 – AML Compliance Program

Perhaps the most critical rule for sanctions officers, Rule 3310 requires firms to develop and implement an AML program that is “reasonably designed” to comply with the Bank Secrecy Act (BSA) and its implementing regulations.

The rule mandates that AML programs include:

• Written policies and procedures to detect and report suspicious transactions
  
  
• Independent testing for compliance
  
  
• Ongoing training for personnel
  
  
• A designated AML compliance officer
  
  
• Procedures for customer identification and beneficial ownership
  
  

While the rule references AML broadly, in practice it means firms must incorporate sanctions checks into their AML framework. Customers and transactions must be screened against OFAC lists at onboarding and on an ongoing basis.

‍

FINRA Rule 2090 – Know Your Customer (KYC)

The KYC rule obligates firms to “use reasonable diligence” to understand the essential facts about every customer. This is not limited to investment objectives or financial suitability; it also requires screening customers for sanctions exposure.

In other words, compliance officers need to ensure that OFAC checks, politically exposed persons (PEP) screening, and adverse media monitoring are integrated into KYC onboarding workflows.

FINRA Rule 3110 – Supervision

Sanctions compliance doesn’t happen in isolation. FINRA Rule 3110 requires firms to establish a supervisory system designed to achieve compliance with applicable securities laws and regulations.

This means compliance teams must design supervisory procedures that include sanctions screening, escalation protocols, and recordkeeping practices. When auditors or examiners review a firm, they expect to see evidence of a documented supervisory framework for sanctions and AML.

FINRA Rule 3314 – Transaction Monitoring

Although less frequently discussed, FINRA rules around trade reporting and monitoring intersect with sanctions compliance. Suspicious trading behavior—such as attempts to disguise beneficial ownership or route transactions through sanctioned jurisdictions—must be flagged under both AML and sanctions compliance obligations.

How FINRA Intersects with OFAC and Other Regulators

One common point of confusion is how FINRA interacts with OFAC, the Treasury agency that maintains the Specially Designated Nationals (SDN) list and other sanctions lists.

Here’s the breakdown:

• OFAC sets the sanctions lists and regulations.
  
  
• FINRA enforces industry compliance with those lists.
  
  
• The SEC oversees FINRA’s enforcement.
  
  

For compliance officers, this means you don’t get to pick and choose. FINRA expects financial institutions to fully integrate OFAC screening into their AML programs, and examiners frequently request proof of ongoing sanctions checks.

Failure to do so has real consequences. FINRA has fined broker-dealers millions of dollars for failing to maintain adequate AML programs or sanctions screening. In 2022, for example, FINRA levied a $700,000 fine against a New York broker-dealer for failing to conduct sufficient AML monitoring, which included gaps in OFAC checks.

Common Pain Points for Compliance Officers

Despite clear rules, implementing sanctions and AML checks under FINRA oversight remains challenging. Common hurdles include:

• Fragmented systems: Many firms use separate tools for KYC, AML, and sanctions, leading to gaps and duplication.
  
  
• False positives: OFAC screening often produces alerts that are resource-intensive to resolve.
  
  
• Evolving sanctions regimes: With geopolitical volatility, sanctions lists change daily, and FINRA expects firms to adapt in real time.
  
  
• Training fatigue: Ensuring staff across front-office, operations, and compliance remain current on FINRA expectations is an ongoing battle.
  
  

Practical Steps to Strengthen FINRA Sanctions Compliance

1. Centralize Your Sanctions Screening

Consolidate AML, KYC, and sanctions checks into a single compliance platform to reduce blind spots.

2. Automate List Updates

Use technology that automatically syncs with OFAC, UN, EU, and other sanctions lists so you’re not relying on manual updates.

3. Enhance Alert Management

Implement risk-based thresholds and AI-driven filters to reduce false positives while still capturing true risks.

4. Train Beyond Compliance Teams

Make sanctions compliance a firm-wide responsibility. FINRA examiners often test whether front-office staff can recognize red flags.

5. Document Everything

Maintain thorough records of sanctions checks, escalations, and SAR (Suspicious Activity Report) filings. FINRA auditors will expect an audit trail that demonstrates program effectiveness.

Aligning FINRA Compliance with Global Standards

While FINRA rules are U.S.-focused, many financial institutions operate globally. Compliance officers should harmonize FINRA expectations with:

• FATF Recommendations (global AML/sanctions guidance)
  
  
• EU and UK sanctions regimes (often broader than OFAC)
  
  
• Local regulators in regions where the institution operates
  
  

A best practice is to design an AML and sanctions framework that meets the strictest requirements among applicable jurisdictions. This not only ensures FINRA compliance but also positions the firm for resilience in an increasingly interconnected regulatory landscape.

The Future of FINRA and Sanctions Compliance

Looking ahead, compliance officers should anticipate:

• More AI in monitoring: FINRA has signaled that firms should embrace emerging technology to improve AML and sanctions effectiveness.
  
  
• Heightened penalties: Regulators are increasingly holding senior management personally accountable for AML and sanctions failures.
  
  
• Cross-border enforcement: Expect greater cooperation between FINRA, SEC, OFAC, and foreign regulators.
  
  

For compliance teams, this underscores the importance of staying proactive, not reactive.

{{snippets-guide}}

Key Takeaways

• FINRA’s rulebook, especially Rule 3310, requires firms to build AML programs that fully integrate sanctions compliance.
  
  
• Compliance officers at financial institutions must treat sanctions screening as core to KYC and supervisory frameworks.
  
  
• Pain points like false positives and evolving sanctions regimes can be addressed with centralized, automated, and risk-based tools.
  
  
• Enforcement actions prove that gaps in AML and sanctions programs result in heavy fines and reputational damage.
  
  
• By aligning FINRA rules with global standards, firms can build compliance programs that are both resilient and scalable.
  
  

Final Thoughts

For financial institutions, understanding FINRA’s role in sanctions compliance is not optional. The intersection of AML checks, OFAC screening, and FINRA supervision defines a large part of modern compliance obligations.

For compliance officers, the challenge is turning this regulatory complexity into a practical, defensible framework that protects both the firm and its clients. By embracing automation, integrating sanctions checks into KYC, and building strong supervisory systems, firms can not only satisfy FINRA but also gain a competitive edge in trust and credibility.

At the end of the day, sanctions compliance under FINRA is about more than avoiding fines. It’s about safeguarding the integrity of financial markets—and the reputation of your institution.

sanctions.io is a highly reliable and cost-effective solution for real-time screening. AI-powered and with an enterprise-grade API with 99.99% uptime are reasons why customers globally trust us with their compliance efforts and sanctions screening needs.

To learn more about how our sanctions, PEP, and criminal watchlist screening service can support your organization's compliance program: Book a free Discovery Call.

‍

We also encourage you to take advantage of our free 7-day trial to get started with your sanctions and AML screening (no credit card is required).

‍