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SEC, Treasury Department Propose Anti-Money Laundering Rule for RIAs

The commission’s proposal will make it more difficult for clients “to use false identities to establish customer relationships” with advisors, according to Chair Gary Gensler.

The SEC is proposing a new customer identification program on the heels of the Treasury Department’s February 2024 proposal to stem potential money laundering.

The program would require RIAs and exempt reporting advisors to “implement reasonable procedures” to verify each client's identity. Advisors would be required to obtain “certain identifying information” on each customer, including their name, date of birth or formation, address and ID number.

According to SEC Chair Gary Gensler, the new rule would make it more difficult for clients to use false identities when forging relationships with advisors.

“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,” Gensler said.

The SEC’s move follows proposed rules unveiled by the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN), which would apply to advisors registered with the SEC and those reporting as exempt advisors. 

Under that rule, advisors would need to follow the strictures of the Bank Secrecy Act, including implementing anti-money laundering programs and programs to counter potential terrorist financing. FinCEN didn’t include a customer identification program requirement, expecting they’d partner with the SEC on that rulemaking (which came to fruition with today’s announcement). 

The Treasury previously released a risk alert on money laundering threats to the RIA industry, finding “national security risks” where “sanctioned individuals, corrupt officials, tax evaders and other criminal actors” used RIAs as a backdoor to U.S. securities.

“Criminal, corrupt and illicit actors have exploited the investment adviser sector to access the U.S. financial system and launder funds,” FinCEN Director Andrea Gacki said in a statement (today’s rule was a joint proposal between FinCEN and the SEC).

According to a fact sheet released by the SEC, the proposal is “generally consistent” with customer identification program requirements on broker/dealers and mutual funds. In a risk alert last year, SEC examiners warned that b/ds aren’t committing the needed resources and staff to comply with AML mandates. The commission worried this gap could grow with increased sanctions against Russian nationals in the wake of that country’s invasion of Ukraine.

The public comment period for the SEC/FinCEN proposal will be open for 60 days after the rule is published in the Federal Register.

TAGS: Industry
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