After years of talking about it, the Financial Crimes Enforcement Network (FinCEN) issued a proposed a rule requiring certain investment advisers to establish anti-money laundering programs and report suspicious activity to FinCEN. The new regulations propose to include investment advisers in the general definition of “financial institution,” which would require them to file Currency Transaction Reports and keep records relating to the transmittal of funds.
For private funds, engaging in Know-Your-Customer and Anti-Money Laundering has become a standard practice. Now, 12 years after FinCEN first proposed a rule-making, and then withdrew it, FinCEN published a new 86-page proposal.
The proposal would apply to investment advisers that are required to be registered with the U.S. Securities and Exchange Commission, including advisers to hedge funds, private equity funds, and other private funds. FinCEN would delegate its authority to examine investment advisers for compliance with these requirements to the SEC.
Here is the main part of the proposed regulations:
(a)(1) Each investment adviser shall develop and implement a written anti-money laundering program reasonably designed to prevent the investment adviser from being used for money laundering or the financing of terrorist activities and to achieve and monitor compliance with the applicable provisions of the Bank Secrecy Act (31 U.S.C. 5311 et seq.) and the implementing regulations thereunder.
(2) Each investment adviser’s anti-money laundering program must be approved in writing by its board of directors or trustees, or if it does not have one, by its sole proprietor, general partner, trustee, or other persons that have functions similar to a board of directors. An investment adviser shall make its anti-money laundering program available for inspection by FinCEN or the SEC upon request.
(b) Minimum requirements. The anti-money laundering program shall at a minimum:
(1) Establish and implement policies, procedures, and internal controls reasonably designed to prevent the investment adviser from being used for money laundering or the financing of terrorist activities and to achieve and monitor compliance with the applicable provisions of the Bank Secrecy Act and the implementing regulations thereunder;
(2) Provide for independent testing for compliance to be conducted by the investment adviser’s personnel or by a qualified outside party;
(3) Designate a person or persons responsible for implementing and monitoring the operations and internal controls of the program; and
(4) Provide ongoing training for appropriate persons.
You would have 60 days to comment once it is published.
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