FinCEN Proposal: Anti-Money Laundering Program and Suspicious Activity Report Filing Requirements

 

Proposed Rule: Anti-Money Laundering Program and Suspicious Activity Report Filing Requirements for Registered Investment Advisers and Exempt Reporting Advisers

Contributed By: Gabrielle Magdziarz

                           Senior Compliance Consultant

                             AdvisorAssist, LLC

On varying occasions, the Financial Crimes Enforcement Network (FinCEN) has submitted rule proposals regarding the need for Registered Investment Advisors (RIAs) and Exempt Reporting Advisors (ERAs) to be subject to comprehensive anti-money laundering and countering the financing of terrorism (AML/CFT) measures. FinCEN’s recent synopsis is driven by the 2024 Investment Adviser Risk Assessment, which identified several illicit finance and national security risks such as sanctioned individuals, corrupt officials, tax evaders, and other criminal actors using RIAs to gain access to US Markets. Furthermore, the risk assessment identified cases of foreign adversaries, including China and Russia, investing in early-stage companies through RIAs to access sensitive information and emerging technology. The proposal would include RIAs and ERAs in the definition of “financial institution” under The Bank Secrecy Act (BSA). Under the BSA, RIAs and ERAs would be required to:

• implement an AML/CFT program;
• file certain reports, such as Suspicious Activity Reports (SARs), with FinCEN;
• keep records such as those relating to the transmittal of funds (i.e., comply with the Recordkeeping and Travel Rule); and
• fulfill other obligations applicable to financial institutions subject to the BSA and FinCEN’s implementing regulations.

Furthermore, the proposal would grant information-sharing provisions between and among FinCEN, law enforcement government agencies, and certain financial institutions to RIAs, along with subjecting RIAs to the “special measures” imposed by FinCEN pursuant to Section 311 of the USA PATRIOT Act. Nuances to this proposal to highlight are the following:

• The proposal will not include the requirement to have a customer identification program that aligns with BSA requirements, nor beneficial ownership requirements for legal entity customers via the Customer Due Diligence rule. It is expected both these requirements will come with joint SEC rule proposals down the line.
• The proposal will not require RIAs to apply AML/CFT program or SAR filing requirements to mutual funds they advise, as mutual funds are already defined as “financial institutions” under the BSA.
• Finally, FinCEN will be delegating examination authority to the SEC for compliance with the BSA and FinCEN’s implementing regulations.

At this time, no action is required for RIAs or ERAs. The proposal will remain in a comment period through April 15, 2024. Should the rule become effective, compliance will be required on or before 12 months from the final rule’s effective date.

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