On February 13, 2024, the U.S. Treasury, Financial Crimes Enforcement Network (FinCEN) proposed rulemaking seeking to impose anti-money-laundering/counter-terrorist financing (AML/CTF) program requirements for SEC registered investment advisers (RIAs) and exempt reporting advisers (ERAs).
Key Takeaway: FinCEN proposed a similar requirement for investment advisers in 2015. However, no requirement was ever finalized. Ten years later, the United States government seems more intent on combating AML/CTF in the financial system and the SEC seems intent on increasing the regulatory burden on private fund advisers.
AML/CTF for Investment Advisers
The proposed rule would require RIAs and ERAs to:
- implement an AML/CTF program;
- file certain reports, such as Suspicious Activity Reports (SARs), with FinCEN;
- keep records such as those relating to the transmittal of funds; and
- fulfill other obligations applicable to financial institutions subject to the Bank Secrecy Act and FinCEN’s implementing regulations.
The proposed rule would also apply information-sharing provisions between and among FinCEN, law enforcement government agencies, and certain financial institutions to investment advisers, along with subjecting investment advisers to the “special measures” imposed by FinCEN pursuant to Section 311 of the USA PATRIOT Act ( Section 311 of the USA PATRIOT Act provides the Secretary of the Treasury with a range of options that can be adapted to target specific money laundering and terrorist financing risks most effectively).
One important note, FinCEN is not proposing a customer identification program requirement for investment advisers but does indicate this may be the focus of future rulemaking with the SEC.
The SEC would be responsible for the examination of investment adviser’s AML/CFT programs under the proposed rule. This delegated examination authority is consistent with FinCEN’s approach to AML/CFT examinations of broker-dealers.
Comment Period and Implementation Date
The comment period for the proposed rule is open until April 15, 2024. Under the proposed rule, covered investment advisers would be required to comply with the rule on or before 12 months from the final rule’s effective date.
Complete text of FinCEN’s proposed rule.
How Trillium Can Help
Trillium helps design and implement policies and procedures that meet regulatory requirements and work for your firm. As an added benefit, Trillium has partnered with ComplyAdvantage. Trillium’s ongoing support includes ComplyAdvantage’s anti-money laundering (AML)/know your customer (KYC) technology to automate customer onboarding and monitoring with a real-time AML risk database and OFAC sanctions checks.