12.5 Customer Protection (SIPC) & AML
SIPC insures customer accounts against brokerage insolvency, while the Bank Secrecy Act and USA PATRIOT Act impose strict reporting requirements to detect money laundering and terrorist financing.
Key FINRA Exam Takeaways
- SIPC (Securities Investor Protection Corporation): Non-profit corporation protecting customers against BROKER-DEALER BANKRUPTCY, NOT market losses.
- SIPC Coverage Limits: Up to $500,000 per separate customer, including a maximum of $250,000 for cash claims.
- Amounts exceeding SIPC limits become general unsecured creditor claims against the bankrupt firm.
- Anti-Money Laundering (AML) Stages: 1. Placement (introducing illicit cash); 2. Layering (complex transactions to obscure origin); 3. Integration (re-entering legitimate economy).
- Currency Transaction Report (CTR): FinCEN Form 112 filed for cash deposits/withdrawals exceeding $10,000 in a single business day. Customer notification is strictly prohibited.
- Suspicious Activity Report (SAR): FinCEN Form 111 filed within 30 days for suspicious transactions involving $5,000 or more. Must remain confidential.
| Agency / Rule | Coverage / Trigger Threshold | Protected Asset | Key Caveat |
|---|---|---|---|
| SIPC | Up to $500,000 total (Max $250,000 cash) | Securities & cash at insolvent broker-dealer | Does NOT protect against market losses or commodities |
| FDIC | Up to $250,000 per depositor per bank | Bank deposit accounts (checking, savings, CDs) | Does NOT cover securities or mutual funds |
| CTR (FinCEN) | Cash transactions > $10,000 in a single day | Currency tracking | Customer must NEVER be informed of filing |
| SAR (FinCEN) | Suspicious transactions ≥ $5,000 | Money laundering / illegal origin | Filed within 30 days; strictly confidential |
Knowledge Checkpoint • Section 12.5
An investor holds a margin account at a broker-dealer with $320,000 in securities and $300,000 in cash. The broker-dealer suddenly enters bankruptcy liquidation. Under SIPC coverage rules, what total amount is covered, and what happens to the remainder?