FinCEN Proposes AML Requirements on Registered Investment Advisers (including Exempt Reporting Advisers)

By: Richard F. Kerr, Jennifer L. Klass, and Annabelle H. North

On 13 February 2024, the Financial Crimes Enforcement Network (FinCEN) issued a notice of proposed rulemaking (NPRM) that would impose anti-money laundering (AML) and counter-terrorist financing (CFT) requirements on Securities and Exchange Commission-registered investment advisers (the SEC, and such investment advisers, RIAs) and exempt reporting advisers (ERAs). FinCEN previously made similar rule proposals in both 2003 and 2015, which were never finalized.

Specifically, the proposal would amend the definition of a “financial institution” under the Bank Secrecy Act to include “investment advisers” that are registered or required to be registered with the SEC or that report to the SEC as ERAs under the Investment Advisers Act of 1940. The inclusion of ERAs in the definition of a financial institution was not contemplated in prior efforts and significantly broadens the impact of the proposal.

The proposed rules would require RIAs and ERAs to:

• Establish AML/CFT programs, including risk-based procedures for conducting ongoing customer due diligence;
• File Suspicious Activity Reports with FinCEN;
• File Currency Transaction Reports for transactions involving a transfer of more than US$10,000 in currency by, through or to the investment adviser;
• Maintain records of originator and beneficiary information for certain transactions;
• Implement due diligence requirements for correspondent and private banking accounts; and
• Be subject to Section 311 of the USA PATRIOT Act, under which the US Secretary of Treasury could require them to take certain “special measures” to address money laundering concerns, such as obtaining, retaining or reporting additional account or customer information.

While FinCEN did not propose to include a customer identification program (CIP) requirement, the NPRM did note that FinCEN anticipates addressing CIP requirements in a joint rulemaking with the SEC in the future. Moreover, FinCEN also plans to introduce requirements for investment advisers to collect beneficial ownership information for legal entity customers in a subsequent rulemaking.

FinCEN will accept written comments on the proposed rulemaking until 15 April 2024.