SEC, FinCEN Propose Customer Identification Program Requirements for Registered Investment Advisers and Exempt Reporting Advisers
summary
The SEC and FinCEN have proposed a new rule requiring investment advisers to implement customer identification programs to prevent money laundering and terrorism financing.
paragraph
The SEC and FinCEN jointly proposed a rule requiring SEC-registered and exempt reporting investment advisers to establish written customer identification programs (CIPs). This regulatory proposal aims to strengthen anti-money laundering and counter-terrorism financing frameworks by mandating identity verification procedures. While no specific charges or dollar amounts are cited, the rule targets the use of false identities for illicit finance activities.
narrative
The Securities and Exchange Commission (SEC) and FinCEN have jointly proposed a new rule requiring SEC-registered investment advisers (RIAs) and exempt reporting advisers (ERAs) to establish written customer identification programs (CIPs). The proposal seeks to prevent criminal and corrupt actors from using false identities to access the U.S. financial system for money laundering, terrorism financing, and tax evasion. This initiative complements a February 2024 FinCEN proposal to designate these advisers as financial institutions under the Bank Secrecy Act. If adopted, the rule would mandate that advisers implement reasonable procedures to verify customer identities and maintain necessary records. The regulatory effort aims to close loopholes that have allowed the investment adviser industry to serve as an entry point for illicit proceeds. A 60-day public comment period will be available following the proposal's publication in the Federal Register.
Classified unclassified. No EDGAR filing fingerprint (criminal/DOJ-side scheme). detection rule →
Parties
andrea gackifincen proposalgary genslerillicit finance activityinvestment adviser sectorsec and fincenthis proposaltreasury risk assessment
Keywords
investment advisersinvestmentadvisersproposalillicitcustomerrequirementsinvestment adviserrias erasfinancialcustomer identificationprogram requirementsexempt reportingreporting advisersprevent illicit
Exhibits & Attached Documents (3)
Extracted insights
Entities 8
- person andrea gacki
- person fincen proposal
- person gary gensler
- person illicit finance activity
- person investment adviser sector
- agency sec and fincen
- person this proposal
- person treasury risk assessment
Triples 10
- SEC and FinCEN Proposed New Rule
- New Rule Would Require RIAs and ERAs to Establish CIPs
- Proposal Is Designed to Prevent Illicit Finance Activity
- FinCEN Proposal Designates RIAs and ERAs as Financial Institutions
- Treasury Risk Assessment Identified Investment Adviser Industry as Entry Point for Illicit Proceeds
- Gary Gensler Said Proposed Rule is Designed to Make it More Difficult to Use False Identities
- Gary Gensler Supports This Proposal
- Andrea Gacki Said Criminal, Corrupt, and Illicit Actors Have Exploited the Investment Adviser Sector
- Criminal, Corrupt, and Illicit Actors Have Exploited Investment Adviser Sector
- Proposed Rule Would Require RIAs and ERAs to Implement a CIP
PDF (from attached: pdf)
Text layers
Extracted body text (3,323c)
Today 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 (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. Under this proposal, 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. 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. This 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. 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. “The proposed rule is designed to make it more difficult to use false identities to establish customer relationships with investment advisers,” said SEC Chair Gary Gensler. “I support this proposal because it could reduce the risk of terrorists and other criminals accessing U.S. financial markets to launder money, finance terrorism, or move funds for other illicit purposes.” “Criminal, corrupt, and illicit actors have exploited the investment adviser sector to access the U.S. financial system and launder funds,” said FinCEN Director Andrea Gacki. “This proposal would help investment advisers better identify and prevent illicit actors from misusing their services, while advancing a harmonized set of CIP obligations.” 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. The proposal is generally consistent with the CIP requirements for other financial institutions, such as brokers or dealers in securities and mutual funds. The proposal is published on SEC.gov and will be published in the Federal Register. The public comment period will remain open for 60 days after publication of the proposing release in the Federal Register. A fact sheet on the Notice of Proposed Rulemaking is available.
OCR text (3,323c · html-text · 99% conf)
Today 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 (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. Under this proposal, 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. 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. This 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. 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. “The proposed rule is designed to make it more difficult to use false identities to establish customer relationships with investment advisers,” said SEC Chair Gary Gensler. “I support this proposal because it could reduce the risk of terrorists and other criminals accessing U.S. financial markets to launder money, finance terrorism, or move funds for other illicit purposes.” “Criminal, corrupt, and illicit actors have exploited the investment adviser sector to access the U.S. financial system and launder funds,” said FinCEN Director Andrea Gacki. “This proposal would help investment advisers better identify and prevent illicit actors from misusing their services, while advancing a harmonized set of CIP obligations.” 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. The proposal is generally consistent with the CIP requirements for other financial institutions, such as brokers or dealers in securities and mutual funds. The proposal is published on SEC.gov and will be published in the Federal Register. The public comment period will remain open for 60 days after publication of the proposing release in the Federal Register. A fact sheet on the Notice of Proposed Rulemaking is available.