On August 25, 2015, the Financial Crimes Enforcement Network (“FinCEN”), a bureau of the U.S. Department of the Treasury, issued a notice of proposed rulemaking that would require registered investment advisers to establish anti-money laundering (“AML”) programs and to report suspicious activity to FinCEN pursuant to the Bank Secrecy Act (“BSA”). The proposed rule seeks to address money laundering vulnerabilities in the U.S. financial system, specifically to prevent illicit actors from using an investment adviser as a means to avoid detection of their activity, which might otherwise occur in dealing with financial institutions that have AML programs and suspicious activity reporting requirements. FinCEN is proposing three significant regulatory changes:
- The proposed rule would include all investment advisers that are registered with the SEC or required to be registered with the SEC under Section 203 of the Advisers Act (generally, investment advisers with assets under management of $100 million or more) within the scope of “financial institutions” for purposes of the BSA, thus subjecting such advisers to all BSA regulatory requirements generally applicable to other financial institutions (e.g., the requirement to file currency transaction reports and comply with recordkeeping requirements relating to the transmittal of funds).
- The proposed rule would require registered investment advisers to develop, implement and monitor a written AML program reasonably designed to prevent the adviser from being used as a conduit to facilitate money laundering or finance terrorist activities and to achieve compliance with the applicable provisions of the BSA and FinCEN implementing regulations. Specifically, a registered investment adviser would be required, among other things, to: (1) adopt and implement policies, procedures and internal controls based upon the adviser’s assessment of the money laundering or terrorist financing risks posed by its clients, (2) provide for periodic independent testing of the AML program, (3) designate an AML compliance officer, and (4) provide ongoing AML training for appropriate firm personnel.
- The proposed rule would require registered investment advisers to report suspicious transactions that involve at least $5,000 in funds or other assets that are conducted or attempted “by, through or at” the adviser. An adviser would be permitted to delegate such responsibilities to an agent or third-party processor, but the adviser would remain liable for any violation by the third party for failure to comply with the suspicious activity reporting requirements.
FinCEN is proposing to delegate its authority to examine registered investment advisers for compliance with these requirements to the SEC. FinCEN notes that it is not proposing a customer identification program requirement at this time, but that it anticipates addressing this issue in a subsequent rulemaking. Comments on the proposed rule are due by November 2, 2015.
The FinCEN proposed rulemaking release is available at: http://www.fincen.gov/statutes_regs/frn/ pdf/1506-AB10_FinCEN_IA_NPRM.pdf.