FinCEN proposes to increase AML requirements for US investment advisers
Overview of the proposed new AML requirements
On February 13, 2024, the US Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) published its long-anticipated proposal to require certain investment advisers to establish anti-money laundering/countering the financing of terrorism (“AML/CFT”) programs and report suspicious activity to the government (Proposed Rule).
The Proposed Rule would apply to:
- investment advisers registered with the Securities and Exchange Commission (“RIAs”),
- exempt reporting advisers (“ERAs”),
- venture capital advisers including non-US advisers meeting these threshold qualifications.
The Proposed Rule would require certain investment advisers to apply AML/CFT requirements pursuant to the Bank Secrecy Act (“BSA”), including implementing risk-based AML/CFT programs, reporting suspicious activity to FinCEN, and fulfilling recordkeeping requirements.
The Proposed Rule would also bring the US in line with international counterparts and address a deficiency identified by the Financial Action Task Force (“FATF”) in its 2016 Mutual Evaluation of the United States’ AML regime.
The Proposed Rule would designate the SEC as examiner of investment advisers for compliance with the Proposed Rule.
New AML requirements of the proposed rule
The newly Proposed Rule would require RIAs and ERAs based in the US 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 (i.e., comply with the Recordkeeping and Travel Rule of the BSA.
- Implement an independent internal or external function to ‘test’ or audit the effectiveness of the program at a risk-based cadence.
- Fulfill other obligations applicable to financial institutions subject to the BSA and FinCEN’s implementing regulations.
Who will be affected by this update?
Private fund advisers in the US are expected to face the biggest changes as a result of this proposal. Mutual fund advisers and those that are dually registered with the SEC as an investment adviser and broker-dealer or bank (or a bank subsidiary) are exempt and already subject to comprehensive AML/CFT obligations.
The proposal notes that although some investment advisers implement AML/CFT requirements in certain circumstances or for certain customers, the application of AML/CFT measures is not uniform across the industry, and investment advisers’ implementation of such measures is not subject to comprehensive enforcement or examination.
The ‘risk-based and reasonably designed’ approach of the Proposed Rule is intended to give investment advisers the flexibility to design their programs so that they are commensurate with the specific risks of the advisory services they provide and the customers they advise.
The notice of the Proposed Rule can be found here.
The fact sheet can be found here.
Effective and compliance dates
Comments on the proposal are due April 15, 2024.
The final rule when published is expected to be effective 12 months after adoption.
How can Waystone Compliance Solutions help?
Our team of US compliance professionals are experts at managing regulatory compliance programs, providing clear insight into how to meet the challenges of this rule.
If you would like more information on this topic or have any questions, please reach out to our US Compliance Solutions team today.