Reported by Holly Deaton

FinCEN proposes that RIAs and exempt reporting advisors (ERAs) — advisors that are not required to register with state or federal regulators but still pay fees and report public information — would now fall under the Bank Secrecy Act. The rule would require that advisors create risk-based AML/CFT programs as well as report suspicious activity to FinCEN and fulfill recordkeeping requirements.

Melissa Goldstein, a former FinCEN attorney and current regulatory lawyer with Schulte Roth & Zabel who focuses her practice on anti-money laundering and sanctions regulatory compliance matters, said the impact on RIAs would be multifold.

“Advisors will now be subject to potential civil enforcement penalties for failure to comply with these AML compliance obligations,” Goldstein told RIA Intel. “In addition, advisors may not be familiar with the requirement to monitor and file suspicious activity reports. And so, monitoring for and filing suspicious activity reports and maintaining the confidentiality of suspicious activity reports will be something new that the industry will need to adjust to.”

Many financial advisors already adopt and implement anti-money laundering programs or have policies and procedures in place that are often administered by third-party organizations. However, the added rules, if adopted, would mean that many RIAs will see increased costs in compliance as well as increased requirements for investment managers beyond what is currently common practice, said Goldstein.

Under the proposed rule, the SEC would have enforcement responsibility, potentially increasing its scope during RIA examinations.

The current use of third-party administrators could potentially be problematic for RIAs if a U.S.-based administrator it uses outsources the work to a company in a foreign jurisdiction.

“There’s language in the proposal that says AML compliance needs to be conducted by persons in the U.S.,” said Goldstein. “If RIAs or ERAs use an administrator and the administrator appears to be a U.S.-based company but the administrator in turn outsources the work to an affiliate that’s located in a foreign jurisdiction, it’s not clear whether that would be permitted under the proposal.”

Read full report: https://www.riaintel.com/article/2cvhnvebid02oo7ygxbeo/heres-what-advisors-should-know-about-treasurys-anti-money-laundering-rule-proposal

Read the 2024 Investment Adviser Risk Assessment by the U.S. Treasury: https://home.treasury.gov/system/files/136/US-Sectoral-Illicit-Finance-Risk-Assessment-Investment-Advisers.pdf