FinCEN issues notice of proposed rulemaking

Would extend AML requirements to RIAs

On August 25, 2015, the Financial Crimes Enforcement Network (FinCEN), a bureau of the US Department of the Treasury, published a notice of proposed rule-making that would extend anti-money laundering requirements to investment advisers registered with the US Securities and Exchange Commission. As such, FinCEN believes registered investment advisers should be subject to certain anti-money laundering requirements because money launderers and terrorist financiers may be exploiting them to access the US financial system.​

Proposed rule-making would extend anti-money laundering requirements

The underlying concern is that broker-dealers and banks might not presently have enough information to assess suspicious activity or money laundering risk for transactions ordered by an adviser on behalf of an unidentified client.

The proposed rule would expand the general definition of “financial institution” under the Bank Secrecy Act (BSA) to include registered investment advisers (RIAs). Consequently, RIAs would be subject to the BSA requirements generally applicable to financial institutions, including the requirements to:

  • File Currency Transaction Reports (CTRs)
  • Keep records relating to the transmittal of funds
  • Respond to law enforcement requests regarding accounts or transactions for named suspects under Section 314(a) of the USA Patriot Act

Under the proposed rule, RIAs would also be required to establish anti-money laundering (AML) programs and file suspicious activity reports (SARs).

AML program requirements

A RIA’s AML program would need to be tailored to the specific risks posed by the advisory services it provides and clients it advises, covering all advisory activities whether the RIA is acting as a primary adviser or sub-adviser. RIAs would be required to create a written AML program designed to reasonably prevent the adviser from being used to facilitate money laundering or financing of terrorist activities, and to achieve and monitor compliance with the applicable provisions of the BSA and FinCEN regulations.

SAR requirements

The proposed rule would subject RIAs to file a SAR for transactions “conducted or attempted by, at, or through an investment adviser” (i) that involve at least $5,000; and (ii) for which the registered investment adviser “knows, suspects, or has reason to suspect” that the transaction is suspicious.

The proposed rule would not require RIAs to implement a Customer Identification Program (CIP) or conduct customer due diligence (CDD). However, FinCEN has said it expects to address both of these requirements through future joint rulemaking with the US Securities and Exchange Commission (SEC). For now, FinCEN has requested comment on whether RIAs should be subject to a CIP requirement, and has made clear that, at least for some advisers, most if not all of the CDD requirements being generally considered might be appropriate on a risk basis.

Compliance with the proposed rules would be assessed by the SEC through its examination process, and non-compliant RIAs would face the risk of civil or criminal liability. For detailed information about the proposed rule and potential impact, download our full report​ .

Proposed rulemaking that would extend AML requirements to Registered Investment Advisers
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