Proposal from SEC, FinCEN calls for investment advisers to ID customers

A new rule proposed Monday by the SEC and Treasury’s Financial Crimes Enforcement Network (FinCEN) would require certain investment advisers to verify the identity of their customers to protect against money laundering, financing terrorism, and other illicit finance activity.

Under the proposal, SEC-registered investment advisers (RIAs) and exempt reporting advisers (ERAs) would need to establish, document, and maintain written customer identification programs (CIPs) in order to strengthen the anti-money laundering and countering the financing of terrorism (AML/CFT) framework for the investment adviser sector.

“Criminal, corrupt, and illicit actors have exploited the investment adviser sector to access the U.S. financial system and launder funds,” FinCEN Director Andrea Gacki said in a news release. “This proposal would help investment advisers better identify and prevent illicit actors from misusing their services, while advancing a harmonized set of CIP obligations.”

The rule, if adopted, would require RIAs and ERAs to implement a CIP that, among other requirements, includes procedures for verifying the identity of each customer to the extent reasonable and practicable and that maintains records of the information used to verify a customer’s identity.

The proposed rule will be published in the Federal Register, and a public comment period will remain open for 60 days after publication.

The rule complements a FinCEN proposal issued earlier this year to designate RIAs and ERAs as “financial institutions” under the Bank Secrecy Act and subject them to AML/CFT program requirements, as well as obligations to file suspicious activity reports. During that comment period, the AICPA asked FinCEN to reassess the proposed regulations, suggesting that the rule as written “overlooks the practical considerations of the size and capacity of RIAs, particularly smaller firms.”

— To comment on this article or to suggest an idea for another article, contact Bryan Strickland at Bryan.Strickland@aicpa-cima.com.