On August 25, 2015, the Financial Crimes Enforcement Network (FinCEN) issued a notice of proposed rulemaking to prescribe standards for investment adviser anti-money laundering (“AML”) programs. In addition, the proposed rulemaking requires certain investment advisers to report suspicious activity to FinCEN pursuant to the Bank Secrecy Act, and to be treated as “financial institutions” under the Bank Secrecy Act.

WHAT DOES THIS MEAN FOR INVESTMENT ADVISER COMPLIANCE OFFICERS?

Investment advisers without established AML and counter terrorism financing compliance programs should prepare now. Regardless of the form the rule ultimately takes, banks and other counterparties will seek assurances that investment advisers have in place a sufficient program. For those who have implemented a program, it will be important to evaluate that program in light of the proposed rulemaking, including the following points of emphasis:

  • Investment advisers would be subject to direct regulatory ramifications for failure to have a sufficient AML program;  
  • Investment advisers would be required to report suspicious activity through the filing of Suspicious Activity Reports (“SARs”) and have a process in place to evaluate, execute, document and audit such reporting;  
  • Investment advisers would be brought under the definition of “financial institution” under the Bank Secrecy Act, which would result in currency transaction reporting and other reporting requirements; and  
  • Investment adviser AML compliance programs would likely be a point of emphasis for the SEC’s Office of Compliance Inspections and Examinations (“OCIE”) program, as well as counterparty diligence.