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Investment Advisors: Proposed Rule Requires Establishing Anti-Money Laundering Programs


3/3/16

Synopsis
The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) proposed a rule that would require certain investment advisors to monitor and report suspicious activity to the agency and also establish anti-money laundering (AML) programs. As part of the proposed rule, the definition of “investment advisor” would fall under the general definition of “financial institution,” as outlined in the Bank Secrecy Act (BSA). With this definition change, investment advisors would be required to file Currency Transaction Reports (CTRs) and maintain records related to the transmittal of funds.  
 
Issue
Investment advisors are not currently subject to the same regulatory requirements of many financial institutions. As such, the proposed rule is intended to inhibit money launderers from accessing the U.S. financial system by taking advantage of this loophole and working through investment advisors to avoid detection of criminal activity. Requiring investment advisors to establish AML programs and file reports of suspicious activity places them under the same regulations as financial institutions that are subject to the BSA. These institutions include mutual funds, broker-dealers, banks, and insurance companies.
 
In proposing the rule, FinCEN Director Jennifer Shasky Calvery emphasized that investment advisors are on the front lines of a multi-trillion dollar sector of our financial system and, therefore, must be vigilant in protecting the integrity of the financial sector. Investment advisors that are required to register with the U.S. Securities and Exchange Commission (SEC) would be subject to the proposed ruling. The rule will be enforced by the SEC and become part of its examinations. 
 
What Does CohnReznick Think?
If the rule is implemented, investment advisors will, at a minimum, need to implement a written AML program and file suspicious activity reports within a specified time period. The investment advisor will have six months from the effective date of the rule to be compliant. Investment advisors should be discussing next steps with legal counsel so they are prepared if the rule becomes effective.
 
Contact
For more information, please contact Jay Levy, Partner and Financial Services Industry Practice Leader, at 646-254-7412 or jay.levy@cohnreznick.com;  William Pidgeon, Partner, at 973-403-7998 or william.pidgeon@cohnreznick.com; or Jennifer Lange, Partner, at 973-618-6239 or  jennifer.lange@cohnreznick.com.
 
To learn more about CohnReznick’s Financial Services Industry Practice, click here.

Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. 

 

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