News

Financial Crimes Enforcement Network Proposes Anti-Money Laundering Rules for Registered Investment Advisers

October 27, 2015

As Proposed, Rules Would Not Apply to Exempt Reporting Advisers or State-Registered Advisers

On September 1, 2015, the Financial Crimes Enforcement Network (“FinCEN”) published a notice of proposed rulemaking in the Federal Register (the “Proposed Rules”) that would require federally registered investment advisers (“RIAs”) to establish and maintain anti-money laundering (“AML”) programs and report suspicious activity to FinCEN pursuant to the Bank Secrecy Act (the “BSA”).[1]  The Proposed Rules would amend the regulations implementing the BSA as follows:

  • Include RIAs in the definition of “financial institution” for purposes of the BSA.  As a result, RIAs would be subject to all of the requirements to which other financial institutions are subject under the BSA, including (without limitation):
     
    • filing Currency Transaction Reports for transactions or groups of related transactions involving deposits, withdrawals, exchanges, payments or transfers of more than $10,000 in currency[2] by, through or to the RIA; and  
    • creating and retaining records of transmittals of funds in excess of $3,000, and ensuring that certain information pertaining to the transmittal of funds “travels” to the next financial institution in the payment chain.
  • Require RIAs to establish and implement AML programs including, at a minimum, (i) the development of internal policies, procedures and controls, (ii) the designation of a compliance officer, (iii) an ongoing employee training program and (iv) an independent audit function to test AML programs. 
  • Require RIAs to report suspicious transactions or groups of related transactions of $5,000 or more that are “conducted or attempted by, at or through” the RIA.[3]  Under the Proposed Rules, a RIA may voluntarily report other suspicious activity it believes is relevant to the possible violation of any law or regulation, but that is not otherwise required to be reported by the Proposed Rules.  
  • Require RIAs to share information with FinCEN (and allow voluntary information sharing with other financial institutions) regarding persons suspected of potential money laundering or terrorist activities.

The Proposed Rules delegate inspection and enforcement of RIA compliance obligations to the Securities and Exchange Commission (the “SEC”).  Although the Proposed Rules by their terms do not apply to investment advisers that are not registered with the SEC (e.g., exempt reporting advisers, state-registered advisers), FinCEN noted that it may seek to impose similar obligations on such advisers in the future. 

 
*          *          *          *          *


FinCEN has requested that all comments be submitted on or before November 2, 2015.  If you have questions concerning FinCEN’s proposed rulemaking or other compliance or examination matters, or would like more detailed information, please do not hesitate to contact any of the attorneys referenced below.

 


Erik A. Bergman
(203) 325-5026 or ebergman@fdh.com

Matthew S. Eisenberg
(203) 325-5084 or meisenberg@fdh.com

Harold B. Finn III
(203) 325-5029 or hfinn@fdh.com

Richard D. Kilbride
(203) 325-5075 or rkilbride@fdh.com

Reed W. Balmer
(203) 325-5011 or rbalmer@fdh.com


Justin J. Shigemi
(203) 325-5065 or jshigemi@fdh.com
 
[1] The release regarding FinCEN’s proposed rulemaking is available at: http://www.fincen.gov/statutes_regs/frn/pdf/1506-AB10_FinCEN_IA_NPRM.pdf
[2] “Currency” is defined as the coin and paper of the United States or of any other country that is designated as legal tender and that circulates and is customarily used as a medium of exchange in a foreign country.
[3] The Proposed Rules are not clear whether or how the obligation to report suspicious activities would apply to transactions “conducted or attempted by, at or through” entities directly or indirectly controlled by a RIA, such as a private fund managed by a RIA or a portfolio company owned by such a private fund.  At the least, the release regarding the Proposed Rules suggests that suspicious activity in connection with a subscription for a private fund interest would be reportable. 

Finn Dixon & Herling LLP is a law firm with extensive experience providing corporate, transactional, investment management, securities, tax, executive compensation, bankruptcy and litigation counsel. Our clients include large and small corporations, venture capital and private equity firms, financial institutions, hedge funds and other investment funds, investment advisers, broker-dealers, public and private businesses, executives, management teams and entrepreneurs.

Copyright © 2015 Finn Dixon & Herling LLP. All Rights Reserved. These materials may not be reproduced or disseminated in any form without the express permission of Finn Dixon & Herling LLP. These materials are intended to inform our clients and friends about developments in the law. They are not intended to constitute a legal opinion or advice or to address any client’s legal problems or specific situations. The format of these materials, and the complex nature of the subject matter, required the making of general statements that summarize an extremely complex body of law and that may be incomplete in some respects. Accordingly, the reader is cautioned against using any of this material in specific situations without obtaining the advice of competent counsel. In light of the foregoing, and the general nature of these materials, these materials should not be regarded, or relied upon, as legal advice.