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AML Compliance: What FinCEN’s New Proposed Anti-Money Laundering Programs Mean for You

The Financial Crimes Enforcement Network (FinCEN) has proposed a rule that requires investment advisers to establish new anti-money laundering (AML) programs. The suggested regulation calls for advisers to implement AML policies and procedures, keep more detailed records, and file reports on specific financial transactions.

FinCEN had attempted to establish AML programs several times since the enactment of the USA PATRIOT Act. In 2002 and 2003, FinCEN proposed rules to regulate some investment advisers and unregistered investment companies. The proposals were withdrawn in 2008 because the groups’ assets were carried at institutions that were already subject to other FinCEN rules.

But the regulatory environment has changed since the 2010 passage of the Dodd-Frank Act. Now FinCEN is concerned money launderers may seek out investment advisers as a way to break into the U.S. financial system.

To prevent this from happening, FinCEN recommends three key regulatory changes:

1) Defining Investment Advisers As Financial Institutions

Under the proposed rule, investment advisers currently registered with (or who are required to register with) the U.S. Securities and Exchange Commission (SEC) would be considered "financial institutions" subject to some of FinCEN's existing AML requirements.

The rule would mostly affect financial planners, pension consultants and other investment advisers with $100 million or more under their management. FinCEN reserves the right to include others, such as state-regulated investment advisers, in the rule.

Those who already qualify as financial institutions, such as broker-dealers, would not be required to establish a separate AML program as long as they have a comprehensive one in place that covers all of the entity’s advisory.

2) Requiring Investment Advisers To Establish AML Programs

If the rule is approved, investment advisers will have to implement a program that protects them from being used as a tool in a money laundering or terrorist scheme. The program must be risk-based, and advisers can build it into their current SEC compliance programs.

The AML program must include the following:

  • The development of internal policies, procedures, and controls
  • Appointing a compliance officer
  • Creating an ongoing employee training program
  • Establishing an independent audit function to test the program

3) Suspicious Activity Reporting

Investment advisers will be required to implement monitoring programs to catch suspicious activities, including unusual withdrawals, under the proposed rule. This may pose a challenge for hedge funds and others with active trading strategies.

The proposed rule also establishes new recordkeeping and reporting requirements. Investment advisers must create and retain fund transmittal records and ensure that specific information moves with the money to the destination financial institution.

Previously, investment advisers had to file Form 8300s for certain transactions. The proposed rule requires advisers to file currency transaction reports instead for transfers of more than $10,000 during one business day.

What This Means for Advisers

The need to be diligent is rising in importance every day. With shrinking timelines and increasingly busy staffs, it’s helpful to outsource tasks to trusted and experienced partners. This would alleviate some of the burden of the proposed rule, and lower the costs to the end client.

Learn More

Learn more about CT’s AML/KYC offerings and other Due Diligence services, contact us at (844) 701-2064.

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