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FinCEN and AML updates: More requirements for fund managers on the horizon?

08 April 2024

On February 13 2024, the U.S. Treasury’s Financial Crimes Enforcement Network (“FinCEN”) issued a notice of proposed rulemaking focusing on stricter Anti-Money Laundering/Combating the Financing of Terrorism (“AML/CFT”) requirements for certain previously exempted RIAs. If enacted, the revised rule would bring significant changes to the investment adviser industry

In short

Under the proposal, the following two categories of investment advisers would be added to the Bank Secrecy Act’s definition of “financial institution” and therefore become subject to AML/CFT requirements:

  • SEC Registered Investment Advisers (“RIAs”); and
  • SEC Exempt Reporting Advisers (“ERAs”).

  • Applicable to all advisory activities, non-advisory activities are excluded.
  • AML/CFT programmes could be requested to be made available for inspection by FinCEN or the SEC
  • Independent testing for compliance to be carried out by the adviser personnel or a qualified outside party
  • Investment advisers would be required to nominate an AML/CFT officer (either a person or a committee)
  • Ongoing training required for appropriate persons
  • Establish, enforce, and maintain the AML/CFT program by persons physically located in the United States
  • RIAs and ERAs already registered as Broker-Dealers will not be required to have multiple AML/CFT programmes, one covering all activities being deemed sufficient

  • RIAs and ERAs will be required to submit SARs to FinCEN for transactions of at least $5,000 (though voluntary reporting for transactions below this threshold is encouraged)
  • Current Form 8300, filled for receipts of over $10,000 in cash would be replaced by a Currency Transaction Report (“CTR”) and SARs where applicable

  • Reporting requirements for the transmittal of funds (e.g., bank transfers) over $3,000
  • Information to obtain covers basic details such as transmittor name, address, account number, or name of financial institution
  • Creation and retention of records for extensions of credit and cross-border movements of currency, monetary instruments, checks, investment securities, and credit over $10,000

  • The proposed rule does not include requirements relating to CIPs, though FinCEN did mention potential future rulemaking addressing CIPs and beneficial ownership collection requirements in partnership with the SEC

  • The SEC is set to be the authority to ensure the proposed rules, if enacted, are respected in the industry

Main requirements

The proposed rule would impact RIAs/ERAs in several key ways:

The role of fund administrators

FinCEN has acknowledged, in several sections of its proposal, that many private funds advisers rely on fund administrators, notably in relation to AML/CFT tasks such as investor due diligence. FinCEN noted that the use of offshore fund administrators for parts of AML/CFT processes, as opposed to US-based ones, may not be appropriate due to the differences in local requirements. FinCEN also specified that ultimate liability for compliance with an adviser’s AML/CFT programme remains with the adviser.

A note on mutual funds

Mutual funds are already captured as “financial institutions” under the BSA. Therefore, investment advisers would not be required to apply the requirements relating to AML/CFT programmes and SAR reporting in relation to those funds.

Next steps

The comment period runs through April 15 2024, and covered investment advisers would be required to comply with the rule within 12 months from the final rule’s effective date.

How Apex can help

Apex’s External Compliance Services – US can assist you in evaluating your obligations under the rule and support firms in the developing of policies, procedures and controls designed to comply with the requirements of the BSA.

Get in touch with our team

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