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Treasury Arm Changes Suspicious Activity Rules

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The Financial Crimes Enforcement Network has issued a final rule dealing with mutual funds’ responsibility to report suspicious transactions to FinCEN.

FinCEN, a unit of the U.S. Treasury Department, has published the final rule, “Amendments to the Bank Secrecy Act Regulations – Requirement That Mutual Funds Report Suspicious Transactions,” today in the Federal Register.

Although the final rule relates to mutual funds, FinCEN notes that it could appear to apply to variable annuities, variable life insurance products and other variable insurance products that make use of mutual funds.

One commenter asked FinCEN officials to make sure that the final rule would not impose a redundant reporting requirement on sellers of variable insurance products, FinCen officials write in the preamble to the regulation.

“Because this rule applies only to open-end management investment companies, it does not apply to separate accounts that are organized as unit investment trusts, which comprise a majority of the separate accounts that issue variable insurance products,” officials write. “Accordingly, the rule applies only to a separate account that is organized as a managed separate account.”

To avoid redundant reporting requirements, FinCEN is changing the rule that applies to insurers to require variable product issuers using separate accounts that meet the definition of a mutual fund to report suspicious activity using the procedures spelled out in the new final rule, officials write.

“A registered broker-dealer involved in a suspicious transaction may file a joint report on behalf of any separate account,” officials write.

A copy of the final regulation is on the Web at Document Link