August 31, 2015
Authored by: Jeff Ziesman
As part of its continuing but slow expansion of the types of financial institutions that are subject to anti-money laundering (AML) obligations under the Bank Secrecy Act and USA PATRIOT Act, FinCEN proposed on August 25, 2015, to require certain investment advisers to establish and maintain AML programs and file suspicious activity reports (the Proposed Rules). The Proposed Rules go further than FinCEN’s 2002 and 2003 proposals for investment advisors, which generally were limited to proposing AML program requirements only, without additional suspicious activity reporting and certain other record keeping requirements.
In explaining its rationale for the Proposed Rules, FinCEN acknowledges that advisers work with financial institutions that are already subject to BSA requirements, such as when executing trades through broker-dealers to purchase or sell client securities, or when directing custodial banks to transfer assets. FinCEN notes, however, that these institutions may not have sufficient information to assess suspicious activity or money laundering, and that investment advisers therefore have an important role to play in safeguarding the financial system from terrorist activities and financial crime.
General Scope and Examination Authority
Under the Proposed Rules, covered investment advisers would include any persons who are registered or required to be registered with the SEC under section 203 of the Investment Advisers Act. This would include both primary advisers and subadvisers. However, because advisers with less than $100 million in regulatory assets under management are generally prohibited from registering with the SEC, those advisers would not be subject to the Proposed Rules.