What: The proposed rule would require some investment advisers to apply certain anti-money-laundering and countering the financing of terrorism (AML/CFT) requirements pursuant to the Bank Secrecy Act (BSA).
Who: SEC-registered investment advisers and investment advisers that report to the SEC as exempt reporting advisers (ERAs) would be included in the definition of “financial institution” under the BSA.
When: Proposed rule announced on February 13, 2024 (Federal Register publish date expected February 15, 2024). The comment period for the proposed rule is open until April 15, 2024.
Why: A risk assessment conducted by the Department of the Treasury identified that criminal actors have used investment advisers as a point of entry to invest in U.S. securities, real estate, and other assets and found that the lack of comprehensive AML/CFT requirements across the investment adviser sector contributed to its vulnerability to illicit finance activity.
How: The proposed rule would require SEC-registered investment advisers and ERAs to:
The proposed rule would also apply information-sharing provisions between and among FinCEN, law enforcement government agencies, and certain financial institutions, along with Section 311 special measures.
The proposed rule does not include a customer identification program (CIP) requirement or a requirement to collect beneficial ownership information (BOI) for legal entities. However, FinCEN plans to address these separately in future rulemaking. The proposed rule would also not require the covered investment advisers to apply AML/CFT and SAR reporting requirements to mutual funds they advise.
Why it matters: Although some investment advisers have adopted voluntary AML/CFT measures, this proposal represents a significant set of potential new mandatory obligations for covered investment advisers. With plans for subsequent rulemaking regarding CIP and BOI requirements, this proposal appears to be simply an opening salvo in what is an extended regulatory push for more consistency between broker-dealers and investment advisers as access points to the US financial system.
CRC keeps its thumb on the pulse of the evolving regulatory landscape. Keep an eye out for additional information, including updated guidance, risk alerts, and CRC’s thoughts on how to ensure successful compliance with evolving regulatory expectations within your firm’s existing regulatory compliance program.
Contact Mitch Avnet for further details: (646)346-2468 | mavnet@compliance-risk.com
