Investment advisors may soon face increased costs and scrutiny thanks to a proposed rule issued by the Financial Crimes Enforcement Network (FinCEN). On Tuesday, August 25, FinCEN proposed a rule that would require many investment advisors to implement AML compliance programs, including the filing of suspicious activity reports (SARs) and currency transaction reports (CTRs). The CTR requirement comes with FinCEN's proposal to include investment advisers in the definition of "financial institution" in the operative regulation.
FinCEN Director Jennifer Shasky Calvery explained in the agency's press release, "Investment advisers are on the front lines of a multi-trillion dollar sector of our financial system . . . . If a client is trying to move or stash dirty money, we need investment advisers to be vigilant in protecting the integrity of their sector."
As the proposed rule explains, "The investment advisers FinCEN proposes to cover by these rules are those registered or required to be registered with the U.S. Securities and Exchange Commission." The issuance of this proposed rule means that affected investment advisors should begin to plan for what appears inevitable. The industry has anticipated – and often feared – this news. FinCEN has consistently broadened the definition of "financial institution" and its oversight of financial services providers of all stripes. However, in this era of ever-expanding government oversight and concern for the integrity of the U.S. financial markets, regulation of AML compliance is the new norm.
FinCEN has proposed for the SEC to act as the examiner of investment advisors for AML compliance. Further, the proposed rule explains that in this rulemaking, FinCEN is not proposing customer identification program requirements or regulatory requirements associated with the USA PATRIOT Act.
This is only a proposed rule, and the eventual final rule will likely contain some changes. For now, investment advisors targeted by the proposed rule should assess the impact that AML compliance will have on their businesses, including operations, budgets, and staffing.
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