On May 13th, the SEC, in conjunction with the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN), proposed new rulemaking under which SEC-registered investment advisers (RIAs) and exempt reporting advisers (ERAs) would be required to establish, document, and maintain written customer identification programs (CIPs) appropriate for their respective sizes and businesses. The new rule is intended to prevent illicit finance activity concerning the customers of investment advisers by enhancing the anti-money laundering and countering the financing of terrorism (AML/CFT) framework for the investment adviser sector.
More specifically, the CIP rules would:
- require RIAs and ERAs to introduce new procedures to identify and verify the identity of their customers in order to form a reasonable belief that RIAs and ERAs know the true identity of their customers, including a customer’s name, date of birth or date of formation, address, and identification number
- make it more difficult for illicit, criminal, or corrupt actors to establish customer relationships with investment advisers, including by using false identities
- complement a separate FinCEN proposal to categorize RIAs and ERAs as “financial institutions” in accordance with the Bank Secrecy Act
- subject RIAs and ERAs to AML/CFT program requirements and obligate them to report suspicious activity. The previously mentioned FinCEN proposal highlights a Treasury risk assessment that determined that the investment adviser industry has served as an entry point into the US market for illicit proceeds associated with foreign corruption, tax evasion, fraud, and other criminal activities
Finally, should the proposed rules be adopted, they would include procedures for recordkeeping pertaining to information used both to verify a customer’s identity and notify customers that the adviser is requesting information to verify their identities.
Interested parties may submit comments pertaining to the Customer Identification Programs for Registered Investment Advisers and Exempt Reporting Advisers rule proposal during the comment period, which will be open for 60 days following its publication in the Federal Register.
Source:
SEC, FinCEN Propose Customer Identification Program Requirements for Registered Investment Advisers and Exempt Reporting Advisers (sec.gov)
