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New Proposed AML/CFT Rules for US Investment Advisers: What You Need to Know



The Financial Crimes Enforcement Network (FinCEN) has introduced a transformative proposal that is set to redefine the regulatory environment for investment advisers in the United States.


As part of its ongoing efforts to safeguard the financial system from illicit activities, FinCEN's proposal addresses critical gaps and strengthens the framework for combating money laundering.


Understanding the Proposed Changes


For the first time, investment advisers will be recognized as “Financial Institutions” under the Bank Secrecy Act. This shift mandates that advisers in the US adopt comprehensive measures to prevent money laundering and terrorism financing, including:


  • Developing AML/CFT Programs: Advisers are expected to develop AML Programs that are responsive to the level of risk they face. This includes identifying potential threats and implementing measures to mitigate these risks effectively.

  • Suspicious Activity Reporting: Advisers will be required to report suspicious activities to FinCEN, which will enable the authorities' ability to respond to potential Financial Crime threats swiftly.

  • Record-keeping requirements: keep records such as those relating to the transmittal of funds (i.e., comply with the Recordkeeping and Travel Rule).

  • Other obligations: Beyond these specific requirements, advisers will need to meet the broader obligations that apply to financial institutions, further integrating them into the national effort to protect the financial system.


Investment Advisers covered by the Proposed Rule


The proposed rule would include certain investment advisers in the definition of “financial institution” under the BSA:

 

  • investment advisers registered with the Securities and Exchange Commission (SEC), also known as registered investment advisers (RIAs), and

  • investment advisers that report to the SEC as exempt reporting advisers (ERAs).


The Rationale Behind the Rule


The current landscape has allowed for an inconsistent application of AML/CFT regulations among investment advisers, creating opportunities for misuse by illicit actors and foreign threats.


This proposal aims to standardize practices across the board, eliminating loopholes and enhancing security measures.


FinCEN's Objectives


By implementing these new rules to financial advisers, FinCEN aims to:


  • Enhance Transparency: The above proposal will enhance transparency in financial transactions and adviser operations, making it harder for illicit funds to flow undetected.

  • Support Law Enforcement: With better reporting and record-keeping, law enforcement agencies will have improved tools to trace and intercept illicit proceeds.

  • Protect the Economy and National Security: Strengthening the AML/CFT framework defends not just the financial system but also the broader interests of economic stability and national security.

Invitation for Public Feedback


FinCEN is actively seeking input on this proposed rule until April 15, 2024. This open invitation underscores the agency's commitment to collaborative policymaking, encouraging stakeholders from all sectors to contribute their insights and help shape a robust regulatory framework.


This move represents a significant step forward in the continuous effort to secure the financial landscape.


Under the proposed rule, covered investment advisers would be required to comply with the rule on or before 12 months from the final rule’s effective date.

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