As we suggested in our recent weekly Financial
Services Newsletter, the Financial Crimes
Enforcement Network (“FinCEN”), a bureau of the
Department of the Treasury issued a proposed rule
(the “Proposed Rule”) on Tuesday, August 25, 2015
regarding duties of investment advisers to comply
with certain Bank Secrecy Act (“BSA”) and Anti-Money
Laundering (“AML”) requirements. The Proposed Rule
also makes certain provisions of the Uniting and
Strengthening America by Providing Appropriate
Tools Required to Intercept and Obstruct Terrorism
Act of 2001 (the “USA PATRIOT Act”) applicable to
Many in the financial services industry have long been
expecting this action. FinCEN originally published
similar rules for comment in 2003 (the “Original
Proposal”); however, the Original Proposal was never
implemented and FinCEN eventually felt that too much
time had elapsed and that further public comment
would be necessary. FinCEN therefore withdrew the
Original Proposal in 2008 with the stated intention
to reintroduce an updated rule at a later date. Seven
years later, it has returned to the idea and is now
seeking public comment on the Proposed Rule.
The BSA and AML requirements that will become
applicable to investment advisers are intended to
prevent money laundering that may be associated
with narcotics trafficking, terrorism, or other illicit
activities. FinCEN believes that the Proposed Rule
is necessary to bring investment advisers up to a
similar standard that is currently mandated for banks,
broker-dealers, mutual funds, and others. FinCEN is
concerned that money launderers may see investment
advisers as the weakest link in the chain and therefore
a “low-risk way to enter the U.S. financial system.”
Who is Covered by the Proposed Rule?
The Proposed Rule covers investment advisers
who are registered, or required to register, with the
Securities and Exchange Commission (“SEC”) (such
entities collectively known as “RIAs”). This definition
encompasses more than 11,000 investment advisers.
Currently, the Proposed Rule will not cover stateregistered
investment advisers, exempt reporting
advisers (“ERAs”)1, or mid-sized2 and small advisers.3
The Proposed Rule includes both primary advisers
In addition to targeting the investment advisers
responsible for the overwhelming majority of assets
under management, FinCEN believes that confining
the Proposed Rule to RIAs also serves a practical goal
of facilitating efficient oversight and enforcement.
FinCEN has statutory authority to delegate its
inspection and enforcement authority, and in the case
of the Proposed Rule, will delegate such authority
to the SEC, which already has responsibility for
supervising RIAs for compliance with the federal
securities laws in general and the Investment Advisers
Act of 1940 (the “Advisers Act”) in particular.
It should be noted that FinCEN explicitly left open the
possibility of, and asked for comment on, rules that
would include state-registered investment advisers
and advisers that are exempt from SEC registration
if it feels that such advisers pose a sufficient risk of
serving as an alternative method for money launderers
to enter the U.S. financial system.
1 Generally defined as those advisers to (i) venture capital funds, (ii) to solely private funds
with less than $150 million in regulatory assets under management, and (iii) certain foreign
advisers with limited contacts to the U.S.
2 Generally defined as those advisers with regulatory assets under management between
$25 million and $100 million.
3 Generally defined as those advisers with regulatory assets under management with less
than $25 million.