RIA Compliance Blog
The Corporate Transparency Act (“Act”) became effective January 1, 2024. The goal of the Act is to provide a framework for the collection of beneficial ownership information from non-exempt entities in order to protect national security interests and bring the United States up to international standards.
The Act requires that all non-exempt corporations, limited liability companies, and similar entities report beneficial ownership information to the Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”). Under the Act, SEC-registered investment advisers are exempt entities. However, state-registered investment advisers are non-exempt under the current framework. State-registered investment advisers created before January 1, 2024, must file the report by January 1, 2025. State-registered investment advisers created on or after January 1, 2024, but before January 1, 2025, have 90 days after receiving notice of their creation to file the initial report. State-registered investment advisers created after January 1, 2025, will have 30 days after receiving notice of their creation to file the original report. Once submitted, there is no regular reporting requirement. However, you must report changes to beneficial ownership on an ongoing basis, in a timely manner, within 30 days of the change.
State-registered investment advisers will be required to identify each beneficial owner and applicant of a reporting company by reporting the full legal name, date of birth, current address, and either a unique identifying number or FinCEN identifier. Beneficial owners include any individuals who exercise substantial control over the entity or who owns or controls 25% or more of the entity. Applicants include any individuals that file an application to form an entity under the laws of a State or Indian Tribe, or registers or files an application to register an entity formed under the laws of a foreign country to do business in the Unites States by filing under the laws of a State or Indian Tribe. A FinCEN identifier will be issued upon request to your firm once you have provided this required report to FinCEN. There are certain exemptions that may apply in unique situations.
For state-registered RIAs, the beneficial owners to be reported will often be the same ones reported on Schedule B of Form ADV. However, the requirements under the Act differ from the instructions to Form ADVAs a result, the individuals to be reported under Form ADV and the Act can sometimes differ.
Once submitted, FinCEN will maintain beneficial ownership and applicant information for at least five years after the company terminates. What constitutes termination has not been defined by the Act or FinCEN rules. Information reported pursuant to the Act may not be disclosed unless requested by certain entities, including law enforcement and certain financial institutions.
If a non-exempt entity fails to comply with the reporting and other requirements of the Act, the non-exempt entity may be subject to civil penalties, fines, and/or imprisonment. The Act provides for a safe harbor from these penalties if the reporting person has reason to believe that the report submitted contains inaccurate information and the person then voluntarily and promptly, which means no later than 30 days after the date the report was submitted, submits correct information.
State-registered RIAs should prepare to ensure compliance with the new law, including drafting policies and procedures addressing the new Act and creating a framework to ensure that beneficial ownership information is reported in a timely manner.
Parker MacIntyre provides legal and compliance services to investment advisers, broker-dealers, registered representatives, hedge funds, and issuers of securities, among others. Our Investment Adviser 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 Investment Adviser Practice Group page for more information.