FinCEN Puts Forward Rule Aimed at Curbing Illicit Finance and National Security Risks in Investment Adviser Sector
WASHINGTON—Today, the Financial Crimes Enforcement Network (FinCEN) under the U.S. Department of the Treasury announced the release of a Notice of Proposed Rulemaking (NPRM) designed to prevent criminals and foreign adversaries from exploiting the U.S. financial system and assets through investment advisers. This proposed rule, in conjunction with recent Treasury measures targeting illicit finance risks associated with anonymous companies and cash-based real estate transactions, aims to enhance transparency in the U.S. financial system and assist law enforcement in identifying illicit proceeds entering the economy.
Under the proposed rule, certain investment advisers would be required to adhere to Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) requirements as outlined in the Bank Secrecy Act (BSA). This includes implementing risk-based AML/CFT programs, reporting suspicious activity to FinCEN, and maintaining proper recordkeeping. Additionally, Treasury has published a risk assessment of the sector, highlighting illicit finance threats and vulnerabilities, such as the inconsistent application of AML/CFT requirements enabling both legitimate and illicit investors to circumvent scrutiny.
“Investment advisers play a crucial role in the U.S. economy, managing investments worth trillions of dollars. However, the fragmented AML/CFT requirements create regulatory loopholes that criminals and foreign adversaries exploit for money laundering, concealing illicit wealth, and undermining American innovation,” stated FinCEN Director Andrea Gacki. “This proposed rule aims to level the regulatory playing field, safeguard U.S. economic and national security, and protect American businesses.”
The proposed rule categorizes investment advisers as “financial institutions” under the BSA, requiring registered advisers with the Securities and Exchange Commission (SEC), as well as those reporting as exempt advisers, to implement AML/CFT programs, file suspicious activity reports, maintain specific records, and fulfill other obligations mandated for financial institutions under the BSA and FinCEN regulations.
Moreover, the proposed rule includes provisions for information sharing among FinCEN, law enforcement agencies, and certain financial institutions, along with applying special measures under Section 311 of the USA PATRIOT Act. FinCEN proposes to delegate examination authority for this rule to the SEC, leveraging its expertise in regulating investment advisers and examining other financial institutions regarding AML/CFT responsibilities.
The proposed rule aligns with the 2021 U.S. Strategy on Countering Corruption, which urged Treasury to evaluate risks associated with the investment adviser industry and reconsider a 2015 NPRM proposing similar AML/CFT requirements for certain advisers. Tailored to address significant risks and enhance financial transparency while minimizing potential business burdens, the proposed rule underscores the importance of the investment adviser sector to legitimate investors and the U.S. economy.
FinCEN invites public feedback on the proposed rule and will accept written comments until April 15, 2024.
See the full Press release here: FINCEN PRESS RELEASE