On February 13, 2024, the Financial Crimes Enforcement Network (FinCEN) issued a proposed rule1 that would extend certain anti-money laundering/countering the financing of terrorism (AML/CFT) program requirements to investment advisers registered with the Securities and Exchange Commission (SEC) and exempt reporting advisers (ERAs) with the SEC.

The proposed rule would require certain covered advisers (i.e., RIAs and ERAs) to apply certain AML/CFT requirements under the Bank Secrecy Act (BSA), including implementing AML/CFT programs, reporting suspicious activity and complying with recordkeeping requirements. The proposed rule would amend the definition of “financial institution” under the BSA to specifically include RIAs and ERAs, which have historically not been subject to most anti-money laundering requirements under U.S. law.

Anti-Money Laundering Program

The proposed rule would require covered advisers to maintain an AML/CFT program that:

  • develops internal policies, procedures and controls reasonably designed to address money laundering, terroristfinancing and other illicit financial risks;
  • designates one or more anti-money laundering compliance officers, who should be an officer of the coveredadviser (or individual with similar authority);
  • institutes an ongoing employee training program;
  • independently tests its AML/CFT program for compliance with applicable BSA requirements; and
  • implements risk-based procedures for conducting ongoing customer due diligence to (1) understand the nature and purpose of customer relationships for the purpose of developing a customer risk profile; and (2) identify and report suspicious transactions and, on a risk basis, to maintain and update customer information.

The proposed rule would require that each covered adviser’s anti-money laundering program be approved in writing by its board of directors or similar governing body or persons.

While aspects of a covered adviser’s anti-money laundering program may be delegated to third parties, the covered adviser would remain fully responsible and legally liable for the program.

Reporting Suspicious Activity

Covered advisers would be required to evaluate customer activity and relationships for applicable money laundering and illicit financial risks and design a suspicious transaction monitoring program tailored to such risks. In addition, the proposed rule would require covered advisers to file suspicious activity reports (SARs) relevant to possible violations of law or regulation with FinCEN.

Recordkeeping

The proposed rule would require covered advisers to create and maintain certain records relating to the transmittal of funds, including originator and beneficiary information, to be shared with other financial institutions in the payment chain.

Key Takeaways

If adopted, the proposed rule would represent significant additional compliance responsibilities and obligations with respect to the compliance programs of investment advisers, in the form of new and unique policies and procedures, the implementation of additional compliance processes and related testing, and additional dedicated resources. Covered advisers will be well served to begin preparing for these requirements now.

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