United States: FinCEN Proposes AML Regulations For Investment Advisers

In August 2015, the Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) proposed regulations that would require investment advisers subject to SEC registration to establish anti-money laundering (AML) programs.1 The proposal also adds such investment advisers to the definition of "financial institutions" under the Bank Secrecy Act (BSA), which consequently requires them to report suspicious activity to FinCEN and subjects them to reporting and recordkeeping requirements under the BSA.

Background FinCEN has been contemplating AML regulations for investment advisers for over a decade. In 2003, FinCEN proposed regulations that would have required SEC-registered investment advisers and a significant number of unregistered advisers to establish AML programs.2 In 2008, FinCEN withdrew that proposal, stating that it would "continue[] to consider the extent to which BSA requirements should be imposed on investment advisors."3 In subsequent years, FinCEN directors noted in public remarks that the agency was in the process of drafting new AML regulations covering investment advisers.4 In light of these developments, as well as SEC no-action relief permitting investment advisers to perform broker dealers' customer identification program obligations,5 some investment advisers have already implemented voluntary AML programs.

FinCEN's stated rationale behind this proposed rule relates to the apparent risk associated with the use of investment advisers to facilitate money laundering activity, due in part to investment advisers' current lack of mandatory AML compliance and reporting obligations. From FinCEN's perspective, investment advisers are prime targets for terrorist financiers looking to avoid heavily regulated banking institutions. According to FinCEN, asymmetric knowledge often exists in transactions involving advisory assets. For example, broker-dealers instructed by an investment adviser to execute a trade, or custodial banks holding assets managed by investment advisers, face a knowledge gap with respect to the identity and objective of the customer compared to the investment adviser, thereby making suspicious activity reporting more difficult for the broker-dealer or custodian. Investment advisers thus may be seen as a low-risk method for launderers to enter the U.S. financial market. FinCEN believes that investment advisers are "uniquely situated to appreciate a broader understanding of their clients' movement of funds through the financial system because of the types of advisory activities in which they engage."6 From FinCEN's perspective, investment advisers are therefore positioned to be front-line AML vigilantes.

Investment Advisers Covered by Proposed Regulations The proposed regulations apply to all investment advisers that are registered or required to be registered with the SEC under the Investment Advisers Act of 1940 (Registered Investment Advisers). Generally, all "large" investment advisers with $100 million or more in regulatory assets under management must register with the SEC, unless an exemption from registration is available. Under the proposed regulations, FinCEN would delegate its authority to examine Registered Investment Advisers for AML compliance to the SEC. The proposal notes that FinCEN may apply AML regulations to state-regulated investment advisers or investment advisers that are exempt from SEC registration through future rulemaking.

FinCEN notes that under its proposed definition of investment adviser, a broad range of advisers would be covered, such as dual-registered investment advisers, financial planners, pension consultants, and entities that provide only securities newsletters and/or research reports. FinCEN advises in the proposed rule that the regulatory burden to establish an AML program would correspond with the risk associated with the program. In other words, investment advisers managing millions of dollars in assets will likely face tougher compliance burdens than others that engage only in lower-risk activities.

AML Program Requirements for Registered Investment Advisers Within six months of the effective date of the proposed regulations, the board of directors (or comparable governing body) of each Registered Investment Adviser would be required to approve a written AML program that includes the following minimum requirements: (1) AML policies, procedures and internal controls; (2) appointment of an AML compliance officer; (3) ongoing employee training; and (4) periodic independent testing of the program.

The proposal clarifies that a Registered Investment Adviser's AML program would be required to cover all advisory activity, including subadvisory services and activity that does not involve the management of client assets. It also emphasizes that FinCEN expects advisers to analyze the money laundering risks of particular clients by using a risk-based evaluation of relevant factors, including the jurisdiction where the client is located, the client's entity type (if applicable), the source of the client's funds, the adviser's historical experience with the client, and references from other financial institutions. FinCEN notes that while registered open-end and closed-end fund clients may present lower money laundering risks than other clients, private fund clients may present higher risks if there is a lack of transparency regarding the funds' underlying investors. According to the proposal, under certain circumstances, a Registered Investment Adviser "may be required to assess the money laundering and terrorist financing risks associated with the underlying investors of a client that is a private fund."7

Recognizing that Registered Investment Advisers are already required to implement written compliance programs pursuant to the Investment Advisers Act, the proposal contemplates that existing policies and procedures can be adapted to address the proposed regulations. In addition, Registered Investment Advisers that are dually registered as a broker-dealer or affiliated with an entity that is required to maintain an AML program in another capacity, such as a bank or an insurance company, are permitted (but not required) to establish enterprise-wide compliance programs. The proposal also permits a Registered Investment Adviser to contractually delegate certain aspects of its AML program to third-party service providers, so long as the adviser remains fully responsible for the effectiveness of the program.

Suspicious Activity Reports The proposal would require Registered Investment Advisers to file a Suspicious Activity Report (SAR) with respect to activity involving at least $5,000 if the adviser knows, suspects, or has reason to suspect that the transaction: (1) involves funds derived from illegal activity or is intended to hide funds derived from illegal activity; (2) is designed to evade the requirements of the BSA; (3) has no apparent lawful purpose; or (4) involves the use of the investment adviser to facilitate criminal activity. The proposed regulations would require Registered Investment Advisers to file a SAR within 30 days after becoming aware of a suspicious transaction. The proposal also permits Registered Investment Advisers to file SARs voluntarily (e.g., in connection with suspicious activity involving less than $5,000).

In order to align reporting requirements of all financial institutions, FinCEN incorporated into the proposed rule language from the suspicious activity reporting rules applicable to other financial institutions, such as banks, broker-dealers, mutual funds, casinos, and money services businesses.

Bank Secrecy Act Reporting and Recordkeeping The proposal defines Registered Investment Advisers as "financial institutions" for purposes of the BSA, thereby subjecting them to certain reporting and recordkeeping obligations. For example, Registered Investment Advisers would be required to comply with the BSA's "Recordkeeping and Travel Rules," requiring them to create and maintain records with respect to transmittals of funds in excess of $3,000. Registered Investment Advisers would also be required to file Currency Transaction Reports in connection with currency transactions in excess of $10,000.8

Comment Period and Future Rulemaking FinCEN is seeking comments on the proposed regulations until November 2, 2015. Notably, unlike banks, broker-dealers, and other financial institutions subject to BSA requirements, Registered Investment Advisers would not be required to implement customer identification programs under the proposed regulations. The proposal notes, however, that FinCEN anticipates addressing the application of customer identification program requirements to investment advisers pursuant to a future rulemaking with the SEC.

1 Anti-Money Laundering Program and Suspicious Activity Report Filing Requirements for Registered Investment Advisers, 80 Fed. Reg. 52,680 (Sept. 1, 2015).

2 Anti-Money Laundering Programs for Investment Advisers, 68 Fed. Reg. 23,646 (May 5, 2003).

3 Withdrawal of the Notice of Proposed Rulemaking; Anti-Money Laundering Programs for Investment Advisers, 73 Fed. Reg. 65,568 (Nov. 4, 2008).

4 See Jennifer Shasky Calvery, Director, Financial Crimes Enforcement Network, Remarks at the Securities Industry and Financial Markets Association Anti-Money Laundering and Financial Crimes Conference (Feb. 27, 2013), available at http://www.fincen.gov/news_room/speech/pdf/20130227.pdf;James H. Freis, Jr., Director, Financial Crimes Enforcement Network, Remarks at the American Bankers Association/American Bar Association Money Laundering Enforcement Conference (Nov. 15, 2011), available at http://www.fincen.gov/news_room/speech/pdf/20111115.pdf.

5 See Sec. Indus. and Fin. Mkts. Ass'n, SEC No-Action Letter (Jan. 9, 2015), available at http://www.sec.gov/divisions/marketreg/mr-noaction/2015/sifma-010915-17a8.pdf.

6 Anti-Money Laundering Program and Suspicious Activity Report Filing Requirements for Registered Investment Advisers, 80 Fed. Reg. 52,680 at 52,682.

7 Id. at 52,688.

8 This requirement would replace Registered Investment Advisers' current obligation to file IRS Form 8300 in connection with transactions involving more than $10,000 in cash or negotiable instruments.

This article is presented for informational purposes only and is not intended to constitute legal advice.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Duane Morris LLP
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Duane Morris LLP
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions