By Lauren Bikoff, MLS
The Financial Crimes Enforcement Network (FinCEN) has released a notice of proposed rulemaking (NPRM) that would include certain “at-risk” investment advisers in the definition of “financial institution” under the Bank Secrecy Act (BSA). In addition, the proposed rule would prescribe minimum standards for anti-money laundering/countering the financing of terrorism (AML/CFT) programs to be established by covered investment advisers, require covered investment advisers to report suspicious activity to FinCEN pursuant to the BSA, and make several other related changes to FinCEN regulations. The proposed rule is scheduled to be published in the February 15 Federal Register.
Regulatory gaps. According to the NPRM’s fact sheet, the U.S. investment adviser industry “provides an important service to investors in the United States and across the world in driving investment opportunities and supporting innovation, growth, and prosperity in the United States.” However, investment advisers are at risk of abuse by money launderers, corrupt officials, and other bad actors. The NPRM attempts to address gaps in the existing AML/CFT regulatory framework in this sector.
“Investment advisers are important gatekeepers to the American economy, overseeing the investment of tens of trillions of dollars. The current patchwork of AML/CFT requirements creates regulatory gaps that criminals and foreign adversaries exploit to launder money, hide illicit wealth, and compromise American innovation,” said FinCEN Director Andrea Gacki. “This proposed rule would level the regulatory playing field, protect U.S. economic and national security, and safeguard American businesses.”
Proposed rule’s requirements. The proposed rule would add investment advisers to the list of businesses classified as financial institutions under the BSA. This includes investment advisers registered with the Securities and Exchange Commission (SEC), also known as registered investment advisers (RIAs); and investment advisers that report to the SEC as exempt reporting advisers (ERAs).
The proposed rule would require RIAs and ERAs to implement an AML/CFT program; file certain reports, such as suspicious activity reports (SARs) with FinCEN; keep records such as those relating to the transmittal of funds; and fulfill other obligations applicable to financial institutions subject to the BSA and FinCEN’s implementing regulations.
The proposed rule would also apply information-sharing provisions between and among FinCEN, law enforcement government agencies, and certain financial institutions, along with special measures that have been applied under Section 311 of the USA PATRIOT Act. Finally, FinCEN is proposing to delegate examination authority for this rule to the SEC given the SEC’s expertise in the regulation of investment advisers and experience in examining other financial institutions with respect to AML/CFT responsibilities.
Covered investment advisers would be required to comply with the rule within 12 months after the rule is finalized. Comments on the NPRM will be accepted through April 15, 2024.