Compliance and Regulatory Services (“CARS”) Hot Topics for September 2015

September 15, 2015

For this monthly distribution, we are highlighting a rule that is being proposed by the Financial Crimes Enforcement Network (“FinCEN”) that would oblige registered investment advisers to develop, adopt and implement an anti-money laundering program. Money laundering represents one of the largest threats to the world’s financial system, evidenced by the many high-profile firms being fined and prosecuted for failed or flawed anti-money laundering programs. There is clearly a zero tolerance for anything less than an air tight program.

FinCEN’s "Anti-Money Laundering Program and Suspicious Activity Report Filing Requirements for Registered Investment Advisers" rule proposal amends the general definition of a financial institution in the regulations implementing the BSA to include registered investment advisers, where previously registered investment advisers were intentionally excluded because they were deemed to be a low-risk target for potential money launders. Under the proposal, advisers would have to establish an anti-money laundering (“AML”) program and to report suspicious activity through the filing of SARs. FinCEN’s proposal, however, does not include the requirement to also adopt a customer identification program (“CIP”), as would be the case under the BSA and U.S. Patriot Act of 2001. This aspect of a typical AML program is being reserved for separate ruling making by the SEC, as the SEC has responsibility for overseeing registered investment advisers.

The rule, if adopted as proposed, requires the AML program to be approved by the Board of Directors, or similar body, committee, or person (such as a general partner or owner), acting in a similar capacity. The program must be risk-based; include both advisory and non-advisory services of the adviser; Use of third parties, such as banks, brokers and administrators, does not relieve the adviser of its duty to be fully responsible for its AML program. The rule was proposed on September 1, 2015 and is open to comment until November 2, 2015.

Our Take: While FinCEN’s proposal will finally close the gap in money laundering regulations to include investment advisers, such as under the BSA and Patriot Act, it seems that registered investment advisers are already required to adopt an AML program, FinCEN’s proposal notwithstanding.  The SEC’s compliance program rule obliges investment advisers to adopt a compliance program to address all actual and potential conflicts of interests. Clearly money laundering falls within that category.

SEC News 

Aug. 25, 2015 SEC Charges Former Investment Bank Analyst and Two Others With Insider Trading in Advance of Client Deals
Aug. 25, 2015 SEC Announces Asset Freeze Against Alleged EB-5 Fraudster in Seattle Area  
Aug. 19, 2015 Shelly Luisi Named Associate Director in the Division of Corporation Finance  
Aug. 19, 2015 SEC Charges Citigroup Global Markets for Compliance and Surveillance Failures  
Aug. 18, 2015 SEC Charges BNY Mellon With FCPA Violations
Aug. 18, 2015 SEC Names Shamoil T. Shipchandler as Regional Director of Fort Worth Office
Aug. 17, 2015 Citigroup Affiliates to Pay $180 Million to Settle Hedge Fund Fraud Charges
Aug. 13, 2015 Three Maryland Men Settle Charges They Defrauded Investors in Real Estate Investment Company
Aug. 13, 2015 Edward Jones to Pay $20 Million for Overcharging Retail Customers in Municipal Bond Underwritings
Aug. 12, 2015 SEC Charges Former Software Executive With FCPA Violations
Aug. 12, 2015 SEC Charges 32 Defendants in Scheme to Trade on Hacked News Releases  
Aug. 11, 2015 SEC Charges 34 Defendants in Microcap Market Manipulation Schemes
Aug. 10, 2015 Guggenheim Partners Investment Management LLC Settles Charges it Failed to Disclose Conflict to Clients  
Aug. 6, 2015 Miller Energy Resources, Former CFO, Current COO Charged With Accounting Fraud
Aug. 5, 2015 SEC Adopts Rule for Pay Ratio Disclosure  
Aug. 5, 2015 SEC Adopts Registration Rules for Security-Based Swap Dealers and Major Security-Based Swap Participants  
Aug. 3, 2015 SEC Charges Houston-Area Businessman in Ponzi Scheme



Aug. 4, 2015 Dodd-Frank at Five: A Capital Markets Swan Song



Aug. 24,2015 FINRA Fines Charles Schwab & Co., Inc. $2 Million for Net Capital Deficiencies
Aug. 17, 2015 Military Spouses Receive Fellowships to Conduct Financial Counseling
Aug. 12, 2015 FINRA Fines StockCross Financial Services, Inc. $800,000 for Regulation SHO Violations
Aug. 6, 2015 FINRA Bars Former Caldwell Broker for Churning Customer Accounts
Aug. 3, 2015 FINRA Fines Aegis Capital Corp. $950,000 for Sales of Unregistered Penny Stocks and AML Violations


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FINRA Rule Filings List
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