The Financial Crimes Enforcement Network of the US Department of the Treasury (FinCEN) published a proposed rule in August 2015 which scoped certain investment advisers into the definition of “financial institution” and subjected them to certain requirements under the anti-money laundering (AML) program and Bank Secrecy Act (BSA). The comment period for the proposed rule ended on November 2, 2015, during which time the agency received 31 comments from trade associations, banking and non-banking organizations, credit unions and individuals, among others.
In the proposed rule, FinCEN would require investment advisers that are registered or are required to be registered with the SEC (generally those with $100 million or more in regulatory assets under management, or those not regulated by a state authority) to maintain AML programs and to file reports of suspicious activity. FinCEN noted, however, that it may consider expanding the scope in the future to include small and mid-sized advisers because they are also at risk for “abuse by money launderers, terrorist financers, and other illicit actors.”
By scooping SEC-regulated investment advisers into the definition of “financial institution” under the BSA at this time, FinCEN would also require these investment advisers to abide by the requirements of the BSA that are generally applicable to financial institutions and allow for coordination between FinCEN and the SEC for application and examination of the requirements. By amending the definition of “financial institution,” FinCEN believes that it is closing the door to potential financers of terrorism or money launderers who could otherwise take advantage of investment advisers’ lack of AML programs and/or BSA compliance to gain access to the US financial system.
FinCEN also proposes to delegate its authority over enforcement of the rule to the SEC, which already regulates the registered investment advisers to whom this rule applies. Under the BSA, regulated institutions are required to monitor and report suspicious activity and comply with Currency Transaction Report (CTR) filings, the recordkeeping requirements for certain transmittals of funds over $3,000, and information sharing requests pursuant to the USA PATRIOT Act. The new requirement for investment advisers to file CTRs replaces the existing Form 8300 for the receipt of cash or negotiable instruments in an amount greater than $10,000. The risk-based AML requirements that would be applicable to investment advisers include a written AML program, approved by the board of directors or trustees of the investment adviser and made available to FinCEN or the SEC upon request. At this time, FinCEN is not imposing the burdensome customer identification program requirements or certain other requirements of the BSA on investment advisers, but expects to do so in subsequent rulemaking issued jointly with the SEC.
In connection with the proposed rule, FinCEN posed several questions to potential commenters regarding the risk for abuse by money launderers and terrorist financers: whether the rule adequately captures the institutions that are most vulnerable to this risk; whether foreign advisers should also be captured in the definition of “financial institution”; and what the potential burden may be on the regulated institutions.
These and other issues will likely be addressed in the final rule, which will likely be published by FinCEN in 2016. As proposed, investment advisers would have six months from the date on which the rule becomes final to implement and comply with its requirements. We also anticipate further joint rulemakings between SEC and FinCEN in the coming months.