Posted by Bob Axelrod
On August 25, 2015, the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury, published a notice of proposed rulemaking that would extend anti-money laundering (AML) requirements to investment advisers registered with the U.S. Securities and Exchange Commission (SEC). According to FinCEN, “investment advisers have an important role to play in safeguarding the financial system against fraud, money laundering, terrorist financing, and other financial crime.” As such, FinCEN believes registered investment advisers (RIAs) should be subject to certain AML requirements because money launderers and terrorist financers may be exploiting them to access the U.S. financial system. 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 RIAs. Consequently, RIAs would be subject to the BSA requirements generally applicable to financial institutions, including the requirements to:
Under the proposed rule, RIAs would also be required to establish AML programs and file suspicious activity reports (SARs), as well as make immediate telephone notification to appropriate law enforcement officials when RIAs identify terrorist or other serious violations that “require immediate attention.”
The proposed rule would not require RIAs to implement a Customer Identification Program (CIP) or to apply pending rules for other kinds of financial institutions to conduct customer due diligence (CDD). However, FinCEN has said it expects to address both of these requirements through future joint rulemaking with the SEC. For now, FinCEN has requested comment on whether RIAs should be subject to a CIP requirement, and has made clear that each adviser needs to evaluate what amount and kind of CDD is appropriate in light of the risk of its business model.
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, and consider the 22 page Federal Register notice itself here.
Director | Deloitte Advisory
Regulatory & Compliance
Deloitte Transactions and Business Analytics LLP