In a January 11, 2010 noaction letter to the Securities Industry and Financial Markets Association, the SEC Division of Trading and Markets agreed to extend a 2004 noaction position for an additional 12 months. The position allows a broker-dealer to rely on the performance of an investment adviser to satisfy certain of its obligations to maintain a Customer Identification Program (CIP) under 31 C.F.R. 103.122 (the CIP Rule). This is the fourth time the SEC staff has extended the expiration date for the no-action relief.
As part of its anti-money laundering (AML) compliance program, a brokerdealer must establish, document, and maintain a written CIP appropriate for its size and business that satisfies the minimum requirements of the CIP Rule. Under the CIP Rule, a broker is able to rely on another financial institution to perform certain of the broker-dealer’s CIP obligations if, among other things, the other financial institution is subject to a rule implementing an AML program. The no-action relief enables brokerdealers to continue to rely on investment advisers, which are currently not subject to an AML program rule, to perform the broker-dealers’ CIP obligations.
The no-action letter confirms the previously issued position, “subject to some modifications.” In particular, the Division stated that it will not recommend enforcement action if a broker-dealer treats an investment adviser as if it were subject to an AML program rule provided:
- All other CIP rule provisions are satisfied;
- Reliance on the adviser is reasonable;
- The adviser is registered with the SEC;
- The adviser enters into a contract with the broker-dealer requiring it to certify annually to the broker-dealer that it has implemented its own AML program that is consistent with the statutory minimum requirements for such programs; and
- The advisers (or its agent) performs the specified requirements of the broker-dealer’s CIP.
The no-action position is scheduled to be withdrawn without further action on January 10, 2011.