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The US Treasury Department in Washington, D.C.

Regulation and Compliance > Federal Regulation > SEC

Treasury Releases AML Rule for Advisors

By Melanie Waddell

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The Treasury Department’s Financial Crimes Enforcement Network, or FinCEN, issued Tuesday its long-awaited anti-money laundering rule for investment advisors.

In a Notice of Proposed Rulemaking, FinCEN states that its proposed rule complements Treasury’s other recent actions “to combat the illicit finance risks from anonymous companies and all-cash real estate transactions,” and that it will add “further transparency to the U.S. financial system and help assist law enforcement in identifying illicit proceeds entering the U.S. economy.”

The rule will “keep criminals and foreign adversaries from exploiting the U.S. financial system and assets through investment advisers,” Treasury said.

The proposed rule would add investment advisors to the list of businesses classified as “financial institutions” under the Bank Secrecy Act.

Advisors registered with the Securities and Exchange Commission, as well as those that report to the SEC as exempt reporting advisers, would be required to implement anti-money laundering and combating the financing of terrorism (AML/CFT) programs, according to FinCEN.

FinCEN states that it’s proposing to delegate examination authority for the rule to the SEC given the SEC’s expertise in regulating investment advisors “and experience in examining other financial institutions with respect to AML/CFT responsibilities.”

Advisors would also be required to file suspicious activity reports, fulfill certain recordkeeping requirements, and fulfill other obligations applicable to financial institutions subject to the BSA and FinCEN’s implementing regulations.

The proposed rule would also apply information-sharing provisions between and among FinCEN, law enforcement government agencies, and certain financial institutions, along with special measures that have been applied under Section 311 of the USA PATRIOT Act.

Comments will be accepted until April 15.

Based on an initial review, the Investment Adviser Association in Washington “is concerned that the sweeping proposal, which will capture virtually all investment advisers regardless of risk or gaps in the current framework, will not accomplish this because it lacks sufficient tailoring to the unique business models and risk profiles of investment advisers,” Gail Bernstein, the group’s general counsel, told ThinkAdvisor Tuesday in an email. “Adding these sweeping and duplicative requirements could unnecessarily burden advisers without providing significant additional benefit.”

Treasury also published Tuesday its risk assessment of investment advisors, “which identifies illicit finance threats and vulnerabilities in the sector, including how the uneven application of AML/CFT requirements across the sector allows both legitimate and illicit investors to ‘shop around’ for an adviser who does not need to inquire into their source of wealth.”

Investment advisors “are important gatekeepers to the American economy, overseeing the investment of tens of trillions of dollars,” FinCEN Director Andrea Gacki said Tuesday in a statement.

“The current patchwork of AML/CFT requirements creates regulatory gaps that criminals and foreign adversaries exploit to launder money, hide illicit wealth, and compromise American innovation. This proposed rule would level the regulatory playing field, protect U.S. economic and national security, and safeguard American businesses,” Gacki said.

IAA, according to Bernstein, is concerned that Treasury’s Risk Assessment “is pulling into the AML bucket risks that are distinct from AML and illicit financing.”

For instance, “it reflects that fraud is a main driver for the proposal,” Bernstein said. Investment advisors “already comply with broad anti-fraud regulations and are required to implement programs designed to detect and prevent fraudulent activity, and the SEC has and exercises broad enforcement authority.”

The IAA urges Treasury “to develop a tailored approach that effectively addresses specific risks while avoiding unnecessary regulatory burdens, especially burdens on smaller investment advisers,” Bernstein added.

Melanie Waddell

@Think_MelanieW

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