anton4.jpg

Anti-Money Laundering Regulation—Third Time’s the Charm?

The Financial Crimes Enforcement Network (FinCEN) proposed on August 25, 2015, a rule that would require certain registered investment advisers to have in place anti-money laundering (AML) policies and procedures and to also report suspicious activity to FinCEN as required by the Bank Secrecy Act (BSA). This is the third try in 12 years by FinCEN to require advisers to comply with AML rules. Previous proposals in 2003 and 2007 were withdrawn. Along with the current proposed rule requiring the adoption of AML programs, FinCEN announced the intention to include investment advisers in the definition of “financial institution” which would subsequently require them to file Currency Transaction Reports (CTRs) for transactions exceeding $10,000 and keep records relating to the transmittal of funds. Currently, the BSA does not expressly include “investment adviser” among its list of entities defined as a financial institution.

The proposed rule highlights the need for the new requirements, saying, “presently, illicit actors seeking to access the financial system may attempt to gain such access through an investment adviser as a means to avoid detection of their activity which might otherwise occur in dealings with financial institutions that have AML programs and suspicious activity reporting requirements,” adding “as long as investment advisers are not subject to AML program and suspicious activity reporting requirements, money launderers may see them as a low-risk way to enter the U.S. financial system.”

The proposal would apply to investment advisers that are required to be registered with the U.S. Securities and Exchange Commission (SEC), including advisers to certain hedge funds, private equity funds, and other private funds. FinCEN would delegate its authority to examine investment advisers for compliance with these requirements to the SEC.

The proposed regulations would require: 1- each-investment adviser to develop and implement a written anti-money laundering program, 2- the AML program to be approved in writing by the adviser’s board of directors or other persons that have functions similar to a board of directors and 3- the investment adviser shall make its anti-money laundering program available for inspection by FinCEN or the SEC upon request.

The anti-money laundering program should at a minimum:

  1. Establish and implement policies, procedures, and internal controls reasonably designed to prevent the investment adviser from being used for money laundering or the financing of terrorist activities and to achieve and monitor compliance with the applicable provisions of the Bank Secrecy Act and the implementing regulations thereunder;
  2. Provide for independent testing for compliance to be conducted by the investment adviser’s personnel or by a qualified outside party;
  3. Designate a person or persons responsible for implementing and monitoring the operations and internal controls of the AML program; and
  4. Provide ongoing training for appropriate persons of the investment adviser.

Our Perspective

While best practices should already include AML policies and procedures, the proposed rule would explicitly require investment advisors to establish AML programs, file reports of suspicious activity and would bring them under similar regulations as other financial institutions subject to the BSA, such as mutual funds, broker-dealers, banks and insurance companies. Compliance with the rule, if adopted, would be mandated six months after being finalized. Advisers should closely monitor the proposed rule and be prepared to incorporate policies and procedures relating to the prevention of money laundering which will aid in being on the lookout for red flags. Red flags could include, for example, a customer refusing to reveal any information about business activities, an advisor refusing to disclose the identity of a client where he/she is acting as an agent, or when a client exhibits a total lack of concern regarding performance returns or risk.

SEC3 can assist your firm in creating, implementing and maintaining your policies and procedures. For further information, please contact your SEC3 representative or contact us at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .

Newsletter

Get the latest compliance news and insights - delivered weekly. The SEC3 Communique covers all compliance topics. CCO3 focuses on Mutual Fund CCO topics.
tip: check both to keep informed!

Communiques

SEC3 Newsletter

Commentary: How Compliance Officers & Firms Can Help Limit CCO Personal Liability This article originally appeared on the Thomson Reuters Regulatory Intelligence subscription service for compliance and risk professionals and is... read more »

Wishing One-and-All a Happy, Healthy and Prosperous New Year

We hope each of you found some peace and tranquility in the company of loved ones this holiday season and want to wish one-and-all a happy, healthy and prosperous New... read more »

Understanding How to Mitigate Liability and Navigate Insurance Options (Part II)

In June, we shared our thoughts around common insurance gaps and insurance riders that CCOs as well as managers should understand. One of the gaps we shared related to pre-claim... read more »

Cybersecurity - What have we learned and what have we done?

Regulatory Landscape In April 2015, the Securities and Exchange Commission ("SEC's") Division of Investment Management issued a guidance update, identifying cybersecurity as a critical issue. Several regulators are in fact focusing... read more »

Gatekeepers in SEC Crosshairs

Ever since the enforcement cases were announced as part of the SEC’s “Operation Broken Gate,” the SEC enforcement division has continued to ramp up scrutiny of gatekeepers including third-party service... read more »

Anna M. Bencrowsky, CRCP, CMFS Joins SEC3

We are pleased to announce that Anna M. Bencrowsky, CRCP, CMFS has joined SEC3 as a Senior Consultant. Prior to joining SEC3, Anna held several executive compliance positions. Anna recently retired... read more »

Events

May 23, 2017 - Webcast: WannaCry Ransomware: Were You Really Protected or Just L…

When: Tuesday, May 23rd, 2017 | Schedule: 12pm - 1pm EST Who: Paul Caiazzo, CEO and Co-Founder, TruShield Security Solutions Michael Brice, Founder, BW Cyber Services John Lukan, Managing Director, SEC Compliance Consultants, Inc. We...

June 14, 2017 - Compliance Breakfast Briefing

8:30-9:00am - Networking and Continental Breakfast 9:00-10:30am - Program Location: Willkie Farr & Gallagher LLP | 600 Travis Street | Suite 2310 | Houston, TX Barry Barbash from Willkie Farr & Gallagher LLP,...

June 13, 2017 - Compliance Breakfast Briefing

8:30-9:00am - Networking and Continental Breakfast 9:00-10:30am - Program Location: Haynes and Boone, LLP | 2323 Victory Avenue | Suite 700 | Dallas, TX 75219 Validated parking is available in the garage attached...

May 31, 2017 - Chicago

9:00-9:30 a.m - Networking and Continental Breakfast 9:30-11:00 a.m - Program Location: Baker & McKenzie LLP | 300 East Randolph Drive | Suite 5000 | Chicago, IL 60601 Kristin Gonzalez and Jerome Tomas...

May 17, 2017 (NYC WIMF)

This event is by invitation only. Please email info@seccc.com to learn more.

May 15, 2017 (NYC Chief Compliance Officer Roundtable)

9:00-9:30am - Networking and Continental Breakfast 9:30-11:00am - Program Location: Blank Rome LLP | The Chrysler Building | 405 Lexington Avenue | New York, NY 10174 | 22nd Floor Boardroom | Phone:...

Webcast: The Most Insidious Cybersecurity Threat Is Also The Least Understood

When: Tuesday, April 25th | Schedule: 12pm - 1pm EST Who: Paul Caiazzo, CEO and Co-Founder, TruShield Security Solutions Michael Brice, Founder, BW Cyber Services John Lukan, Managing Director, SEC Compliance Consultants, Inc. Ransomware, the...

CCO Liability (Part III): Managing Liability Webinar

In this webinar, panelists discuss indemnifications and insurance as potential remedies to address the direct financial risks to a CCO. Attendees will learn: What terms and conditions should Chief Compliance Officers be...

Webinar: CCO Liability (Part III): Managing Liability: Navigating Indemnities an…

When: Tuesday, February 21, 2017 Schedule: 11:00am ET / 10:00am CT / 9:00am MT / 8:00am PT / 7:00am AT Description of Webinar: The National Society of Compliance Professionals is pleased to host...

Webcast: SEC 2017 Examination Focus Area – Cybersecurity Testing

Penetration Testing & Vulnerability Assessments - Examining the SEC & FINRA Requirements When: Wednesday, January 25th | Schedule: 12pm - 1pm EST Who: Paul Caiazzo, CEO and Co-Founder, TruShield Security Solutions Michael Brice, Founder,...

Chief Compliance Officer Roundtable: Breakfast Briefing

When: October 20, 2016 Where: Blank Rome LLP | The Chrysler Building | 405 Lexington Avenue | New York, NY 10174 | 22nd Floor Boardroom | Phone: 212.885.5000 Thomas Westle and Janaya...

Practicing Law Institute - Hedge Fund Management 2016

When: September 15, 2016 Where: New York & concurrent webcast | 1177 Avenue of the Americas | New York, NY 10036 Schedule: 9:00 am – 5:00 pm Janaya Moscony, President of SEC3 will...

CHIEF COMPLIANCE OFFICER ROUNDTABLE: BREAKFAST BRIEFING

When: April 13, 2016 Where: Blank Rome LLP | The Chrysler Building | 405 Lexington Avenue | New York, NY 10174 22nd Floor Boardroom Thomas Westle and Janaya Moscony, along with industry experts,...

COMPLIANCE SCIENCE SUMMIT 2015

When: November 17, 2015 Where: Convene Midtown East | 730 Third Avenue | New York, NY 10017 Janaya Moscony, President, SEC Compliance Consultants, Inc. will be moderating a...

CHIEF COMPLIANCE OFFICER ROUNDTABLE: BREAKFAST BRIEFING

When: October 13, 2015 Where: Blank Rome LLP | The Chrysler Building | 405 Lexington Avenue | New York, NY 10174 22nd Floor Boardroom Thomas Westle and Janaya Moscony, along with...