The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) proposed a new rule to keep criminals and foreign adversaries from exploiting the U.S. financial system through investment advisers.
Specifically, the proposed rule would require certain investment advisers to apply Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) requirements pursuant to the Bank Secrecy Act (BSA). This would include implementing risk-based AML/CFT programs, reporting suspicious activity to FinCEN, and fulfilling recordkeeping requirements.
Further, the rule would add investment advisers to the list of businesses classified as “financial institutions” under the BSA. Investment advisers registered with the Securities and Exchange Commission (SEC), as well as those that report to the SEC as exempt reporting advisers, would be required to implement AML/CFT programs. In addition, they would be required to file suspicious activity reports, fulfill certain recordkeeping requirements, and fulfill other obligations applicable to financial institutions subject to the BSA and FinCEN’s implementing regulations.
“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,” FinCEN Director Andrea Gacki said. “This proposed rule would level the regulatory playing field, protect U.S. economic and national security, and safeguard American businesses.”
Also, the rule would apply information-sharing provisions between and among FinCEN, law enforcement government agencies, and certain financial institutions, along with special measures that have been applied via 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.
Treasury also published its risk assessment of this sector, which identifies illicit finance threats and vulnerabilities, including how the uneven application of AML/CFT requirements allows both legitimate and illicit investors to “shop around” for an adviser who does not need to inquire into their source of wealth.
The proposal builds on the 2021 U.S. Strategy on Countering Corruption, which recommended that Treasury assess the risks posed by the investment adviser industry, and to reexamine a 2015 rule that similarly proposed to extend AML/CFT requirements to certain investment advisers. Ultimately, the rule is designed to strengthen financial transparency and assist law enforcement in identifying illicit proceeds entering the U.S. economy, while minimizing potential business burden.
Written comments in response to the proposed rule will be accepted until April 15.