FinCEN Publishes a New Rule for Investment Advisers

If you thought that FinCEN would stop at LLCs and corporations under the Corporate Transparency Act, you may want to think twice. This time, FinCEN teamed up with the SEC to propose yet another new disclosure rule.

This new rule would require both SEC-registered investment advisers (RIA) and exempt reporting advisers (ERAs) to establish, document, and maintain written customer identification programs (CIPs). In addition, this rule would also designate RIAs and ERAs as “financial institutions” under the Bank Secrecy Act (BSA).

And because they would count as financial institutions, RIAs and ERAs would be subject to the same anti-money laundering (AML) and countering the financing of terrorism (CFT) reporting requirements, as well as suspicious activity report (SAR) filing obligations. However, unlike the Corporate Transparency Act, these RIAs and ERAs would not be immediately required to report this information to FinCEN. But there’s a good chance that FinCEN and the SEC may require this information be reported to them upon request in the future.

The aims of this new law are to stop money laundering, prevent illicit finance activity, and to stop criminals from using false identities when attempting to set up an account.

This new regulation would also require RIAs and ERAs to implement reasonable procedures in their CIPs to identify and verify the identity of their customers. At minimum, they would be required to obtain the following pieces of information from each customer:

• • Name,
  • Date of birth (or date of formation, if it’s an entity),
  • Address, and
  • An ID number (from a government-issued ID, or a tax ID)

Before they can collect this information from the customer, that customer must be given notice in advance. The adviser will then use this information to verify their identities.

In addition, if the customer closes the account with them, these CIPs must keep and maintain these records until five years after they leave. The CIPs will also be required to develop procedures to determine whether the customer appears on any federal government lists of known or suspected terrorists.

Advisers must comply with this rule on or before 6 months from the final rule’s effective date.