The Securities and Exchange Commission and the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) jointly proposed a new rule that would require SEC-registered investment advisers and exempt reporting advisers to have customer identification programs (CIPs). The proposed rule is designed to prevent illicit finance activity involving the customers of investment advisers. The proposal is generally consistent with the CIP requirements for other financial institutions, such as brokers or dealers in securities and mutual funds.
This proposed rule complements the separate FinCEN proposed from February 2024 to designate RIAs and ERAs as “financial institutions” under the Bank Secrecy Act and subject them to AML/CFT program requirements and suspicious activity report filing obligations.
I think most fund managers are already taking steps to make sure they are not doing business with terrorists, drug-dealers and other sanctioned people. The proposed rule is going to require more paperwork for low-risk customer/clients/investors.
At this point its just a proposed rule. I think it will eventually be put in place and largely unchanged. It’s really just a question of timing. I assume they will try to put this rule in place with the same compliance deadline as the February proposal. There is a 60-day comment period and then time to address the comments. I’d guess fourth quarter of 2024 for publication of the final rule and 2025 year-end for a compliance deadline.
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