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August 10, 2016 at 10:04 PM
When the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) quietly proposed a rule a year ago adding registered investment advisors to the definition of “financial institution” for the purposes of anti-money laundering program requirements established by the Bank Secrecy Act, few people outside industry insiders took notice.
However, judging by the impact such AML requirements have had on other, similar financial institutions such as broker-dealers, RIAs may be in for a rude awakening: AML rules have a way of expanding into new and unanticipated areas, creating large enforcement targets for regulators to pursue aggressively.
The proposed rule, which for now would apply only to investment advisors required to be registered with the SEC, would subject investment advisors to the same rules that already require banks, mutual funds, securities broker-dealers and insurance companies to maintain AML programs and file reports of suspicious activities, in order to combat what FinCEN called “money laundering vulnerabilities in the U.S. financial system.”
The text of the proposed rule was published on September 1, 2015, and a public comment period was opened for sixty days. (FinCEN spokeswoman Candice Basso told ThinkAdvisor that FinCEN “is considering public comments as it crafts the final rule” for RIAs.)
The proposed rule would require an investment advisor to develop and implement its AML program within six months of the date the regulation goes into effect, which could be any day now.
Public comment on the compliance timetable was critical of the six-month deadline because of the onerous effects of the law; several commenters suggested that the compliance date should be extended to eighteen months.
Implications for Investment Advisors
