New SEC and FinCEN Rule Aims to Bolster AML Efforts in the Investment Adviser Sector

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In a joint move, the U.S. Securities and Exchange Commission (SEC) and the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) have introduced a new regulatory proposal aimed at enhancing anti-money laundering (AML) and countering the financing of terrorism (CFT) protocols within the investment adviser sector. This proposal mandates SEC-registered investment advisers (RIAs) and exempt reporting advisers (ERAs) to develop comprehensive Customer Identification Programs (CIPs).

The primary goal of this initiative is to curb the potential for illicit finance activities by ensuring a more robust framework for verifying and maintaining the true identities of customers engaging with investment advisers. The proposal stipulates that RIAs and ERAs must adopt reasonable procedures not only to identify but also to verify the identities of their clients thoroughly. This measure seeks to prevent the infiltration of the U.S. financial markets by criminals, terrorists, or other illicit actors using false identities.

This regulatory push is complemented by another proposal from FinCEN earlier this year, which suggested designating RIAs and ERAs as “financial institutions” under the Bank Secrecy Act (BSA). This designation subjects them to AML/CFT program requirements, including the obligation to file suspicious activity reports (SARs). This February proposal came on the heels of a Treasury risk assessment, which highlighted the investment adviser industry as a conduit for illicit proceeds from foreign corruption, fraud, tax evasion, and other criminal activities.

If enacted, this rule would require RIAs and ERAs to implement a CIP that not only involves rigorous procedures for verifying each customer’s identity but also maintaining detailed records of the verification process. The consistency of this proposal with existing CIP requirements for other financial entities like brokers or securities dealers further underscores the government’s commitment to a unified regulatory framework.

The rule has been published on the SEC’s website and is slated for publication in the Federal Register. Stakeholders are invited to submit their comments during the 60-day public comment period following its publication.

CategoriesCySEC FinCEN

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