Breakdown of New AML Regulations for Advisers

FinCEN recently released a new proposal that would subject certain investment advisers to its anti-money laundering (AML) regulations. Under the new proposal, FinCEN includes SEC registered investment advisers (RIAs) under the definition of “financial institution” as found in the Bank Secrecy Act (BSA) and USA PATRIOT Act AML provisions.

FinCEN proposed AML regulations for investment advisers originally back in 2003, but, after much debate, that proposal was officially withdrawn in 2008. The new proposal will burden RIAs with AML obligations similar to those for mutual funds.

The following will be required of RIAs, if the proposed regulation is approved in full:

1. Firms must have a designated person (Anti-Money Laundering Compliance Officer) or committee to oversee a formal AML Program.
2. Firms must have a formal, written AML Program, approved in writing by management or the Board that outlines the firm’s obligations under the BSA and USA PATRIOT Act and describes how the firm detects, prevents, and monitors for money laundering activity.
3. Firms must have a formal ongoing training program that reviews AML policies and informs all employees of the specific AML risks faced by the firm and how to prevent and detect those risks.
4. Independent testing of the AML program must be conducted periodically based upon a risk-analysis of the potential for money laundering activity to occur within the firm.

The SEC has been granted enforcement authority under the proposal, so firms should expect OCIE examiners to be looking at firm AML programs and activities during routine inspections.

The proposal’s comment period ends on November 2, 2015.

View proposal in the Federal Register, “Anti-Money Laundering Program and Suspicious Activity Report Filing Requirements for Registered Investment Advisers,” 9/1/2015.

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