More On Legal & Compliancefrom The Advisor's Professional Library
- Do’s and Don’ts of Advisory Contracts In preparation for a compliance exam, securities regulators typically will ask to see copies of an RIAs advisory agreements. An RIA must be able to produce requested contracts and the contracts must comply with applicable SEC or state rules.
- Differences Between State and SEC Regulation of Investment Advisors States may impose licensing or registration requirements on IARs doing business in their jurisdiction, even if the IAR works for an SEC-registered firm. States may investigate and prosecute fraud by any IAR in their jurisdiction, even if the individual works for an SEC-registered firm.
The Treasury Department’s Financial Crimes Enforcement Network is drafting a proposal that would require investment advisors to establish anti-money-laundering programs and report suspicious activity.
James Freis, director of FinCEN, told bankers at an anti-money-laundering conference in Washington on Nov. 15 that his division will work with the Securities and Exchange Commission as well as state regulators as it drafts the proposal. “FinCEN is currently revisiting the topic of investment advisors” having anti-money-laundering plans, and “building on the changes to that industry pursuant to the Dodd-Frank Act, the SEC rules implementing Dodd-Frank and other changes,” Freis said.
Among participants in the securities industry, FinCEN’s rules currently apply to broker-dealers and to mutual funds, he said. FinCEN formally began focusing public attention on investment advisors in September 2002, Freis said, when FinCEN published a notice of proposed rulemaking in the Federal Register proposing that unregistered investment companies establish anti-money-laundering programs.
Although investment advisors are not expressly included within the definition of financial institution under the Bank Secrecy Act, “the BSA authorizes the secretary to include additional types of entities within the definition of financial institution” and on May 5, 2003, FinCEN published a notice of proposed rulemaking in the Federal Register proposing that investment advisors establish anti-money laundering programs, Freis explained.
However, on Nov. 4, 2008, FinCEN announced that it was withdrawing the proposed regulations and would not proceed with regulations for these entities without publishing new proposals and allowing for industry comments.
Additionally since then, Freis said, “there have been significant changes in the regulatory framework for investment advisers with the passage of the Dodd-Frank Act and SEC rules implementing Dodd-Frank.”