AML Obligations in Prime Brokerage: Who Has the Customer and What Each Firm Sees

Updated October 2026.

A prime brokerage arrangement puts one customer, usually a fund, at several broker-dealers at once: the prime broker that carries its account, and each executing broker it trades through. Every one of those firms runs its own anti-money laundering (AML) program under FINRA Rule 3310 and the Bank Secrecy Act. The arrangement routes settlement through one firm, and each firm's AML obligations stay its own.

This page covers which firm has the customer for customer identification (CIP) and suspicious activity reporting (SAR) purposes, what each firm can see, and where the rules on relying on another firm stand in October 2026. It replaces an earlier version that described unsourced laundering schemes and monitoring features Loffa doesn't offer.

Each Broker-Dealer Has the Customer

The broker-dealer CIP rule, 31 CFR 1023.220, applies to each customer, which 31 CFR 1023.100 defines as a person that opens a new account. In prime brokerage the fund opens an account at the prime broker and another at each executing broker. The SEC staff's 1994 prime brokerage letter says there is "a client relationship between the executing broker and the customer," and its condition 5B requires each firm to sign its own contract with the customer. So each broker-dealer has a CIP obligation for the fund.

The letter predates the CIP rule by nine years, and it's still explicit about the executing broker. Condition 5A requires the contract between the prime broker and each executing broker to record the executing broker's "responsibility to know its customers, obtain all the proper documentation (including all new account documents), conduct its own credit checks." Condition 8 says the executing broker "must undertake its own credit review to ensure that it knows the customer as to these transactions." Our page on the 1994 letter has its background.

A few customers fall outside CIP. The rule excludes financial institutions regulated by a federal functional regulator, banks regulated by a state bank regulator, government bodies, and companies listed on the exchanges named in 31 CFR 1020.315(b)(4). A private fund is none of these, so it's a customer at every broker-dealer where it opens an account.

Two broker-dealers can avoid doing the work twice. Paragraph (a)(6) of the CIP rule lets a broker-dealer rely on another financial institution for a shared customer when the reliance is reasonable, the other institution is subject to an AML program rule and regulated by a federal functional regulator, and the other institution agrees by contract to certify each year that it has implemented its AML program and will perform the specified CIP requirements. A prime broker meets the second test, so an executing broker can rely on it. Without the contract and the yearly certification, the executing broker has no basis for reliance under (a)(6).

Relying on the Fund's Adviser

The people a broker-dealer actually deals with for a fund usually work for its investment adviser. Advisers aren't yet subject to an AML program rule, so paragraph (a)(6) doesn't reach them on its own terms. SEC staff have covered that gap with a no-action position since February 12, 2004. The latest extension, a letter to SIFMA dated December 3, 2025, keeps it in effect until January 1, 2028, for both the CIP rule and the beneficial ownership rule.

The conditions are the ones set out in the staff's December 9, 2022 letter and carried forward. The broker-dealer's reliance must be reasonable, the adviser must be a U.S. adviser registered with the SEC, and the adviser must agree by contract to:

• keep its own AML program, consistent with 31 U.S.C. 5318(h), and update it as the law changes
• perform the specified CIP or beneficial ownership steps
• promptly disclose potentially suspicious or unusual activity it detects while doing them, so the broker-dealer can decide whether to file a SAR
• certify each year that its representations are still accurate
• provide its records on request to the SEC, an SRO, or law enforcement

The staff also expects due diligence on the adviser at the start of the relationship, scaled to the risk the adviser and its customer base present, and updated as the relationship goes on. An affiliated adviser may present less risk, but the letter calls affiliation one of many factors.

FinCEN's rule that would bring advisers into the Bank Secrecy Act was issued on August 28, 2024. It requires SEC-registered advisers and exempt reporting advisers to run AML/CFT programs and file SARs, and it was due to take effect January 1, 2026. Treasury exempted advisers from it until January 1, 2028 by an order dated August 5, 2025, and FinCEN made the delay final in a rule announced December 31, 2025, after saying it would review the rule. FinCEN's April 2026 proposal to rewrite the AML program rules for other financial institutions, broker-dealers included, leaves the adviser rule alone. Until an adviser rule takes effect, the staff letter is what lets a broker-dealer rely on a fund's adviser.

Beneficial Ownership Stops at the Fund

FinCEN's customer due diligence rule, 31 CFR 1010.230, requires a broker-dealer to identify the beneficial owners of a legal entity customer: each person who owns 25% or more of it, and one person with significant responsibility to control it. Funds are treated differently in two ways.

• A pooled investment vehicle operated or advised by a financial institution that the rule excludes is itself excluded, and SEC-registered advisers are on the excluded list.
• Any other pooled investment vehicle is subject only to the control prong. FinCEN's 2018 CDD FAQs (Question 18) say firms don't have to look through the fund to its investors. They identify one individual who controls it, such as a portfolio manager or general partner.

So neither the prime broker nor any executing broker is required to know who invested in the fund. That information sits on the fund's side, which is why the adviser's contractual promise to pass on unusual activity matters.

One 2026 change helps a prime broker that opens several accounts for the same fund. Under FinCEN's exceptive relief of February 13, 2026 (FIN-2026-R001), a firm can identify and verify a legal entity customer's beneficial owners when the customer first opens an account, and after that only when facts call the information into question or its risk-based procedures call for it.

What Each Firm Can See

Firm	Sees	Doesn't see
Prime broker	Every trade from every executing broker, reported by the morning after trade date (condition 7); positions, financing, and short sales; cash and securities moving in and out; which executing brokers the customer uses (condition 6)	How orders were entered, changed, or canceled at each executing broker; the customer's accounts at other prime brokers
Executing broker	Orders, cancellations, and executions in its own account for the fund	Where the money comes from or goes; positions at the prime broker; trades at other executing brokers
Fund's adviser	The fund's investors, subscriptions, and redemptions; how trades are allocated across funds and brokers	Nothing on the broker side it isn't sent. It isn't a Bank Secrecy Act financial institution until an adviser rule takes effect.

That split decides which firm can catch which red flag in FINRA's Regulatory Notice 19-18 (May 6, 2019). Patterns in how a customer places orders on one side of the market show up in order data, which only the executing broker has. A securities account used for payments or outgoing wires with little or no securities activity is visible to the firm that holds the cash, the prime broker. The notice also flags a master/sub structure "which enables trading anonymity with respect to the sub-accounts' activity," and that can limit what both firms see. The notice's mirror-trade flag needs both legs of the trade, and the prime broker sees both only if both settle into accounts it carries.

Who Files the SAR

Under 31 CFR 1023.320(a)(3), the duty to identify and report a suspicious transaction "rests with each broker-dealer involved in the transaction." One report can cover it if it contains all the relevant facts. In a prime brokerage trade, the prime broker and the executing broker each own that decision, and neither can assume the other filed. How the two firms can share information before a filing is covered in our page on AML risk in done-away trades.

What to Put in Writing

1. For each prime brokerage relationship, state in the CIP procedures whether you rely on the other broker-dealer, and keep the reliance contract and each year's certification.
2. For each adviser you rely on, keep the reliance contract, your due diligence on the adviser, and its annual certifications. Put January 1, 2028 on the calendar, since the staff relief ends then unless it's extended again.
3. Name who at the prime broker calls whom at each executing broker when one firm sees something the other needs.
4. Keep CIP identifying information for five years after the account closes and verification records for five years after they're made (31 CFR 1023.220(a)(3)). Keep each SAR and its supporting documents for five years from filing.

Loffa's Prime Broker Integrated Network (PBIN) holds the SIA-150 agreements between prime brokers and executing brokers, and the SIA-151 clearance agreements between customers and the clearing brokers on the executing side. It doesn't monitor transactions or verify identities; that work stays with each firm's AML program.