Tougher AML standards on horizon for US investment advisers

FinCEN has proposed a rule aimed at enhancing anti-money laundering and counter-financing of terrorism measures within the investment advisory sector. Seeking to extend the Bank Secrecy Act’s requirements application to certain SEC registered investment advisers and exempt reporting advisers, the proposals would require significant changes from firms and are worth understanding in detail during the consultation period.

The proposed rule mandates registered investment advisers and exempt reporting advisers to:

  • implement risk-based anti-money laundering and counter-financing of terrorism programs
  • report suspicious activities to FinCEN
  • comply with recordkeeping obligations
  • fulfil other Bank Secrecy Act-related responsibilities.

The assessment identified risks related to foreign adversary investments, through anonymized investment structures, in early-stage companies and real estate. The proposed mandates would seek to identify these risks before investments are made.

Given the significant assets being supervised and the identified vulnerabilities to illicit finance, the proposed rule aims to mitigate these risks by aligning the sector with existing standards. The move also responds to a deficiency highlighted by the Financial Action Task Force in its evaluation of the U.S. financial system.

Keeping your existing framework compliant

Investment advisers should prepare for the potential implementation of these measures by reviewing their current AML/CFT programs and beginning to evaluate the processes necessary to comply with the new requirements. Public comments will be open until April 15th, 2024, after which FinCEN will determine the final rule.

In anticipation of the rule’s passage, we recommend beginning preliminary assessments of your compliance programs to prepare for these additional requirements. Investment advisers should begin with a risk assessment of their client and investor base and identify procedures required to comply with the new requirements, alongside independent testing.

We can help

Our team help you plan and manage these new requirements in a risk conscious manner to help mitigate these new burdens.

We can identify and address any gaps, deficiencies or weaknesses to ensure your procedures, systems and tools are serving you the right way and keep you compliant.