The Treasury Department told financial institutions, including investment advisors, this month to hold off on implementing the customer identification requirements in Section 326 of the USA Patriot Act until Treasury and the Securities and Exchange Commission finalize a joint rule and it becomes effective.
Treasury and the SEC proposed customer identification rules for broker/dealers and mutual funds in July; the rule suggested that these firms have a program in place by October 25. But comments on the proposed rules "revealed substantial issues that the regulators are analyzing," says John Baker, a securities lawyer with Stradley, Ronon, Stevens & Young in Washington. "The final rules will provide financial institutions with a reasonable amount of time in which to come into compliance."
Debra Brown, president of Self Audit, Inc., in Beverly Farms, Massachusetts, a provider of software to investment advisors and other financial institutions, says her company just re-released its Anti-Money Laundering Program Kit that includes a "generic customer identification program," or CIP. Brown notes that while the SEC has not finalized the CIP program requirements, the newest version of Self Audit's kit "allows firms to be in compliance by having customer identification procedures." She says Self Audit is also coming out "with a very similar [customer ID] program for advisors of hedge funds," although it's still unclear when hedge funds will have to comply.
The Treasury Department did make clear that it wants hedge funds to establish anti-money laundering rules as set forth in the Patriot Act by issuing a proposed rule in September.
Information about Self Audit's anti-money laundering kit, which runs about $800 and contains an employee training program with Power Point slides and due diligence information, is available at www.selfauditor.com.
Brown says while her company's software offers help with due diligence, other software companies are offering technology that allows advisors to match Social Security numbers against a central social security database.