RIA Compliance Blog
Although there is currently no requirement that registered investment advisers maintain anti-money laundering programs pursuant to the USA PATRIOT Act, the Bank Secrecy Act (“BSA”) or any of the other acts that apply to certain financial institutions, that may change if the Treasury Department’s Financial Crimes and Enforcement Network (“FinCEN”) adopts a rule proposed earlier this year. Specifically, the proposed rule would subject investment advisers registered with the Securities and Exchange Commission (“SEC”) to formal AML compliance program adoption and reporting requirements. The rule, if adopted, would expand the current definitions of “financial institutions” to cover SEC-registered advisers. The rule would require compliance with the Bank Secrecy Act (“BSA”) and the USA PATRIOT Act, resulting in an adviser being required to establish AML compliance programs, file suspicious activity reports, and keep records relating to AML activity, among other things.
Currently, most registered investment advisers do adopt policies relating to AML and suspicious activity reporting procedures, even though they are not so required by law or regulation. In a sense, it has become a “best practice” to do so. Practically speaking, because all investment advisers conduct activity on behalf of their clients through qualified custodians, broker-dealers, and other financial intermediaries that are expressly covered by the PATRIOT Act, the BSA and other laws, AML, the intermediaries who partner with investment advisers usually require such advisers to have AML and suspicious activity reporting programs or procedures in place as a means of aiding the broker or other primarily responsible firm fulfilling its obligations.
The current proposed rule follows two previous proposed rules that were withdrawn in 2002 and 2003, respectively. In explaining the reasons for the proposed rule, FinCEN has stated that investment advisers may have a more detailed understanding of their clients, and therefore may be more sensitive to movement of funds through the financial system by their clients more attuned to improper or suspicious activity.
If the proposed rule is adopted, all SEC registered investment advisers would be required to adopt an AML compliance program that must include, at a minimum:
• The designation of a person to be responsible for the implementation and monitoring of the program (this would usually be the Chief Compliance Officer or a specific designated person under the CCO’s control);
• The development of written policies and controls that are appropriately risk-based;
• Ongoing training for all personnel for whom such training would be appropriate in order to implement the firm policies; and • Independent testing by a qualified third party or by company personnel.
In addition, if adopted, the rule would require registered investment advisers to file currency transaction reports with FinCen pursuant to the BSA and keep records relating to those reports and to report suspicious activity attempted by, at or through the investment adviser that involves $5,000 in funds or other assets, either individually or in the aggregate. The rule would also require registered investment to comply with certain information sharing requirements of the PATRIOT Act.
Parker MacIntyre provides legal and compliance services to investment advisers, broker dealers, registered representatives, hedge funds, and issuers of securities, among others. Our regulatory practice group assists financial service providers with complex issues that arise in the course of their business, including complying with federal and state laws and rules. Please visit our website for more information.