News & Insights

KYC requirements in the US continue to ramp up with FinCEN proposed rule for Investment Advisor Sector

Louis Dodd
Tue, 27 Feb, 2024

FinCEN recently issued a Notice of Proposed Rulemaking (NPRM) to keep criminals and foreign adversaries from exploiting the US financial system and assets through investment advisors.  

Key points to note include

Under the proposed rule, registered investment advisors (RIAs) and exempt reporting advisers (ERAs) would be included in the definition of ‘financial institution’ under the Banking Secrecy Act (BSA).

These firms would be required to apply AML and CFT requirements pursuant to the Bank Secrecy Act including:

  • Implementation of a risk-based AML / CFT programme;
  • Filing of certain reports such as Suspicious Activity Reports with FinCEN
  • Keeping records such as those relating to the transmittal of funds; and
  • Fulfilling other obligations applicable to financial institutions subject to the BSA.

• The proposed rule would apply information-sharing provisions between and among FinCEN, law enforcement government agencies, and certain financial institutions, along with special measures that have been applied under Section 311 of the USA PATRIOT Act.

• FinCEN proposes to delegate examination authority for this rule to the SEC given their expertise in the regulation of investment advisers and experience in examining other financial institutions with respect to AML/CFT responsibilities.

• The comment period for the NPRM is open until 15 April 2024.

• Covered investment advisors would be required to comply with the rule on or before 12 months from the final rule’s effective date.

Trend towards increased AML requirements for US managers and advisers

The proposed rule forms part of a broader trend towards the introduction of more AML requirements in the US and coincides with the publication of a risk assessment of the investment advisor sector which identified how the “uneven application of AML / CFT across the sector” facilitates regulatory arbitrage through enabling investors (both legitimate and illicit) to “shop around” for an advisor who does not need to inquire into their source of wealth. It complements other recent actions to address illicit finance risks, increase transparency in the financial system and assist with law enforcement efforts with further measures to follow.  FinCEN states that whilst “at this time” is not proposing a customer identification program requirement for investment advisers or an obligation for investment advisors to collect beneficial ownership information for legal entity customers it anticipates addressing both areas in subsequent rule makings.

How we can help?

As the trusted hub of the private markets, IDR is on hand to help fund managers and investment advisers get ahead of incoming AML / CFT requirements with our internationally compliant KYC solution and ongoing MLRO Support .

Internationally compliant KYC

  • Investors authenticate once across all your funds to globally compliant standards.
  • Identification and verification of all beneficial owners.
  • Daily screening against sanctions and enforcement lists.
  • Investors are prompted to review and update information periodically with an indicative risk rating.

MLRO Support

Drawing on insights from your pre approved investor KYC, our experienced MLRO team offers tailored guidance and support in relation to ongoing regulatory compliance.

For more information contact Louis Dodd or visit our website.


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