The U.S. Securities and Exchange Commission (SEC) and the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) jointly proposed a rule on May 13 that would require SEC-registered investment advisers (RIAs) and exempt reporting advisers (ERAs) (each an investment adviser and collectively investment advisers) to establish and maintain written customer identification programs (CIPs).1 In particular, the proposed rule would include prescriptive requirements for investment advisers to confirm the identity of every client, record such verifications, inform clients about the verification activities. It also would impose corresponding recordkeeping requirements.
The proposed rule largely mirrors — and in some respects, duplicates — existing requirements for other financial institutions, such as broker-dealers and mutual funds. This alert highlights the particular impact on investment advisers.
CIP Proposal
Under the proposed rule, each time a person opens a new “account” with an investment adviser, the person becomes a “customer” of the adviser. The definitions of “account” and “customer” are quite broad, and investment advisers might need to include relationships that are not part of current voluntary programs.
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1 Customer Identification Programs for Registered Investment Advisers and Exempt Reporting Advisers, SEC Release No. BSA-1 (May 13, 2024).
The proposed rule follows a February proposal by FinCEN that, if adopted, would require investment advisers to develop and implement an AML/CFT program, file suspicious activity reports (SARs) and currency transaction reports, and meet certain recordkeeping and other requirements. Anti-Money Laundering/Countering the Financing of Terrorism Program and Suspicious Activity Report Filing Requirements for Registered Investment Advisers and Exempt Reporting Advisers, 89 Fed. Reg. 12,108 (proposed February 15, 2024) (to be codified at 31 C.F.R. pts. 1010, 1032).
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