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.
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(Complete Listing: http://www.finra.org/Industry/Regulation/Notices/2014/index.htm)
FINRA Rule Filings List
(Complete Listing: http://www.finra.org/Industry/Regulation/RuleFilings/2014/index.htm)