On May 13, 2024, the SEC and FinCEN jointly proposed a new rule under the Bank Secrecy Act (BSA) that would impose new customer identification program (CIP) requirements on registered investment advisers and exempt reporting advisers.
The proposed rule is part of a broader effort to strengthen the anti-money laundering/countering the financing of terrorism (AML/CFT) regulatory framework applicable to investment advisers. On February 15, 2024, FinCEN issued a separate proposal to designate registered investment advisers and exempt reporting advisers as “financial institutions” under the BSA and thereby subject them to AML/CFT program requirements and obligations to file suspicious activity reports. In that proposal, FinCEN cited a risk assessment report issued by the Department of the Treasury that identified the investment adviser industry as “an entry point into the U.S. market for illicit proceeds associated with foreign corruption, fraud, and tax evasion.”
Under the joint proposed rule, advisers would be required to establish, document and maintain written CIPs as part of their overall AML/CFT programs. Highlights of the joint proposed rule include the following:
The adviser CIP requirements under the proposed rule are intended to be generally consistent with existing rules applicable to other financial entities, including brokers, dealers and open-end investment companies. Additionally, the proposed rule specifically provides that advisers to mutual funds are not required to include those mutual funds in their CIPs, as mutual funds are already subject to existing CIP requirements.
The proposed rule would require an adviser’s CIP to include procedures for verifying the identity of any person seeking to open an account with the adviser, within a reasonable time before or after the account is opened, with such procedures based on the adviser’s assessment of relevant risks (e.g., types of accounts maintained, methods of opening accounts, types of identifying information and the adviser’s size, location and customer base). The procedures must specify the identifying information that will be obtained, including, at a minimum, name, date of birth or date of formation, address and identification number. Such procedures must enable the adviser to form a reasonable belief that it knows the customer’s true identity. The CIP would also need to include procedures for circumstances in which a customer’s identity cannot be verified.
An adviser’s CIP would also be required to include procedures for making and maintaining records related to verifying customer identity, with specified retention periods, as well as procedures for providing customers with adequate notice that the adviser is requesting identifying information.
Comments on the proposal are due on or before July 22, 2024.
The SEC’s proposing release is available here, a related fact sheet is available here and a related press release is available here.