WASHINGTON—The Securities and Exchange Commission (SEC) and Treasury’s Financial Crimes Enforcement Network (FinCEN) have jointly proposed a new rule that would require SEC-registered investment advisers (RIAs) and exempt reporting advisers (ERAs) to establish, document, and maintain written customer identification programs (CIPs).
The proposal is designed to prevent illicit finance activity involving the customers of investment advisers by strengthening the anti-money laundering and countering the financing of terrorism (AML/CFT) framework for the investment adviser sector, FinCEN said.
Under this proposal, FinCen said RIAs and ERAs would be required to implement reasonable procedures to identify and verify the identity of their customers, among other requirements, in order to form a “reasonable belief that RIAs and ERAs know the true identity of their customers.”
In addition, FinCEN said the proposed rule would make it more difficult for criminal, corrupt, or illicit actors to establish customer relationships—including by using false identities—with investment advisers for the purposes of laundering money, financing terrorism, or engaging in other illicit finance activity.
‘Complement’ to Earlier Proposal
According to Treasury, the proposed rulemaking complements a separate FinCEN proposal in February 2024 to designate RIAs and ERAs as “financial institutions” under the Bank Secrecy Act (BSA) and subject them to AML/CFT program requirements and suspicious activity report (SAR) filing obligations, among other requirements.
FinCEN noted that proposal cites a Treasury risk assessment that identified that the investment adviser industry has served as an entry point into the U.S. market for illicit proceeds associated with foreign corruption, fraud, tax evasion, and other criminal activities.
“Together, these proposals aim to prevent illicit finance activity in the investment adviser sector and further safeguard the U.S. financial system,” FinCEN said.
What Rule Would Do
The rule, if adopted, would require RIAs and ERAs to, among other things, implement a CIP that includes procedures for verifying the identity of each customer to the extent reasonable and practicable and maintaining records of the information used to verify a customer’s identity, among other requirements, FinCEN explained.
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