How often must AML compliance testing be performed if a firm does not execute transactions for clients?

AML compliance testing for firms that do not execute transactions for clients must be performed every two years. This requirement stems from the need for firms to maintain a robust Anti-Money Laundering (AML) program, even if they are not directly engaging in transaction activities.

The two-year interval provides a reasonable balance allowing for the detection of potential weaknesses in the firm's AML policies and procedures. It ensures that the firm continuously evaluates and updates its compliance practices in alignment with regulatory expectations. This timeframe also takes into account the evolving nature of financial regulations and risks associated with money laundering and terrorist financing.

In contrast, annual testing might be more appropriate for firms with higher transaction volumes, while shorter intervals like every six months would be excessive for firms not engaged in client transactions. A three-year testing cycle would be too infrequent, potentially leading to outdated practices and increasing the risk of compliance gaps. Thus, the biennial requirement best fits the needs of a firm without transaction activity, ensuring that it remains vigilant and compliant in its AML obligations.