Proposed Anti-Money Laundering Regulation for Investment Advisers Passes First Hurdle, Gets OMB Approval

There has recently been speculation about a new U.S. rule that would potentially subject investment advisers to the same types of anti-money laundering (“AML”) regulations that govern banks.¹ Now, the speculation is over. According to its website, the Office of Management and Budget (“OMB”) approved a new AML rule proposed by the Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) on July 23, 2015, paving the way for implementation after a period of public comment.² 

The new rule has been in the works since 2003, when FinCEN first proposed a rule extending AML regulations under the Bank Secrecy Act (“BSA”) to investment advisers.³ FinCEN withdrew the proposed rule in 2008.⁴ FinCEN explained that it would take into consideration the financial industry’s concerns and the rapidly changing landscape of the financial services industry before proposing a new rule.⁵ 

Now, FinCEN appears ready to finish what it started in 2003. We will know more about the content of the proposed rule when it is made public, which should be within the next few weeks.⁶ For now, we know from the OMB’s website that the rule will “prescribe minimum standards for anti-money laundering programs to be established by certain investment advisers and to require such investment advisers to report suspicious activity to FinCEN pursuant to the Bank Secrecy Act.”⁷ The Wall Street Journal notes that this is likely to require money managers to inquire of clients about the source of the funds they place with advisers.⁸ 

It is important for investment advisers to stay ahead of this upcoming regulation in order to avoid the costly enforcement actions and public criticism that has resulted from allegations of AML failures at a number of banks. Pending publication of the proposed rule, investment advisers should monitor the status of the regulation and begin to prepare for any changes that it may require, including the possibility of having to file suspicious activity reports and implementing in-house compliance systems. 

How Dechert Can Help 

Dechert is a market-leader in advising investment advisers regarding compliance with the myriad of regulations governing the industry. Dechert also regularly advises banks and other financial institutions about AML issues. 

Footnotes 

_{1) Michael J. Gilbert & Ethan G. Solove, “Will Anti-Money Laundering Regulations be Extended to Investment Advisers?” DECHERT ONPOINT, June 2015.
2) Office of Information and Regulatory Affairs and Office of Management and Budget, “View Rule 31 CFR 103”
3) Financial Crimes Enforcement Network; Withdrawal of the Notice of Proposed Rulemaking; Anti-Money Laundering Programs for Investment Advisers, 73 Fed. Reg. 214, 65568-65569 (Nov. 4, 2008).
4) Id.
5) Id.
6) Joe Palazzolo, “Rule Would Impel Big Funds to Strengthen Controls,” WALL STREET JOURNAL, Aug. 7, 2015
7) Office of Information and Regulatory Affairs and Office of Management and Budget, “View Rule 31 CFR 103”
8) Joe Palazzolo, “Rule Would Impel Big Funds to Strengthen Controls,” WALL STREET JOURNAL, Aug. 7, 2015}