There has recently been speculation about a new U.S. rule that would potentially subject investment advisers to the same types of anti-money laundering (“AML”) regulations that govern banks.1 Now, the speculation is over. According to its website, the Office of Management and Budget (“OMB”) approved a new AML rule proposed by the Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) on July 23, 2015, paving the way for implementation after a period of public comment.2
The new rule has been in the works since 2003, when FinCEN first proposed a rule extending AML regulations under the Bank Secrecy Act (“BSA”) to investment advisers.3 FinCEN withdrew the proposed rule in 2008.4 FinCEN explained that it would take into consideration the financial industry’s concerns and the rapidly changing landscape of the financial services industry before proposing a new rule.5
Now, FinCEN appears ready to finish what it started in 2003. We will know more about the content of the proposed rule when it is made public, which should be within the next few weeks.6 For now, we know from the OMB’s website that the rule will “prescribe minimum standards for anti-money laundering programs to be established by certain investment advisers and to require such investment advisers to report suspicious activity to FinCEN pursuant to the Bank Secrecy Act.”7 The Wall Street Journal notes that this is likely to require money managers to inquire of clients about the source of the funds they place with advisers.8
It is important for investment advisers to stay ahead of this upcoming regulation in order to avoid the costly enforcement actions and public criticism that has resulted from allegations of AML failures at a number of banks. Pending publication of the proposed rule, investment advisers should monitor the status of the regulation and begin to prepare for any changes that it may require, including the possibility of having to file suspicious activity reports and implementing in-house compliance systems.