FinCEN Proposes Rule to Subject Certain Investment Advisers to Anti-Money Laundering Program, Recordkeeping, and Reporting Requirements under the Bank Secrecy Act
The U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) has issued a Notice of Proposed Rulemaking suggesting the inclusion of certain investment advisers in Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) compliance program, recordkeeping, and reporting requirements under the Bank Secrecy Act (BSA).
The proposed rule, open for public comment until April 15, 2024, would necessitate covered investment advisers to adhere to the regulation within 12 months from the effective date of the final rule.
FinCEN intends to delegate examination authority to the Securities and Exchange Commission (SEC) due to the SEC’s proficiency in regulating investment advisers and previous experience in examining other financial institutions regarding AML/CFT responsibilities.
Following years of rulemaking endeavors, FinCEN presented a Notice of Proposed Rulemaking on February 15, 2024, aiming to subject specific investment advisers to AML/CFT compliance requirements under the BSA. The comment period for the proposed rule extends until April 15, 2024. If enacted, covered investment advisers would be obliged to comply within 12 months from the effective date of the final rule.
Previously, FinCEN had considered extending AML/CFT program requirements to private funds and investment advisors in 2002, 2003, and 2015. However, these attempts were withdrawn, partly due to arguments suggesting that the imposition of AML/CFT program requirements on investment advisers is unnecessary and redundant, considering their transactions are processed through financial institutions already subject to AML/CFT program requirements. Nevertheless, FinCEN’s increased attention to illicit finance risks in the investment advisory sector and significant efforts by the Department of the Treasury to justify the implementation of the proposed rule indicate momentum to address perceived gaps in the U.S. AML regulatory framework.
The proposed rule would apply to investment advisers registered with the SEC and investment advisers reporting to the SEC as exempt reporting advisers (ERAs). State-registered investment advisers and non-U.S. investment advisers relying on the foreign private adviser exemption would be excluded from the definition of an investment adviser under the proposed rule.
If adopted, the proposed rule would require RIAs and ERAs to establish an AML/CFT program, report suspicious activities, maintain records of certain transactions, implement information-sharing procedures, and adopt special measures and due diligence requirements for correspondent and private banking accounts. These requirements aim to prevent RIAs and ERAs from being used for money laundering, terrorist financing, and other illicit finance activities.
RIAs and ERAs should begin considering potential implications of the proposed rule and steps required for compliance should it be adopted in its current or similar form.
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