FinCEN Proposes Rule to Subject Certain Investment Advisors to Anti-Money Laundering Requirements
The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) recently proposed a new rule (the Proposed Rule) which would add both investment advisors (RIAs) registered with the Securities and Exchange Commission (SEC) and investment advisors who report to the SEC as exempt reporting advisers (ERAs) to the list of businesses classified as “financial institutions” under the Bank Secrecy Act (BSA), effectively extending existing anti-money laundering program requirements to RIAs and ERAs for the first time.
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If the Proposed Rule is adopted as a final rule, both RIAs and ERAs, subject to certain available exemptions, will be required to:
- Implement a written Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) program that includes, among other things, establishing internal policies and procedures to comply with the BSA, appointing an AML/CFT compliance officer and instituting an ongoing employee training program.
- Report suspicious activity and file certain reports with FinCEN, such as Suspicious Activity Reports (SARs) for certain suspicious transactions and Currency Transaction Reports (CTRs) for transactions involving a payment or transfer of more than $10,000 in currency, by through, or to, the RIA or ERA during one business day.
- Maintain records such as those relating to the transmittal of funds that equal or exceed $3,000 (i.e., comply with the Recordkeeping and Travel Rule under the BSA).
- Fulfill other obligations applicable to financial institutions under the BSA and FinCEN regulations.
The Proposed Rule includes information-sharing provisions between FinCEN, law enforcement agencies and financial institutions, along with subjecting investment advisers to the “special measures” imposed by FinCEN pursuant to Section 311 of the USA PATRIOT Act. Under the Proposed Rule, FinCEN is proposing to delegate its authority to examine RIAs and ERAs to the SEC.
Although FinCEN is not currently proposing a customer identification program requirement or an obligation for RIAs and ERAs to collect beneficial ownership information for legal entity customers, FinCEN noted that it anticipates addressing these items in subsequent rulemakings.
If the Proposed Rule goes into effect, covered investment advisors would be required to comply within 12 months from the final rule’s effective date. The comment period for the Proposed Rule will remain open until April 15, 2024.
If you have any questions about the Proposed Rule, please contact authors Keith Kaplan, Nicole Haiem and Samantha Blank, who are members of the Fund Formation Practice Group at Klehr Harrison.