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Will Investment Advisors Soon Be Held to the Same Standards as Banks?

registered investment advisor policies

Hedge fund manager and registered investment advisor policies may be subject to a new set of rules aimed at reporting suspicious activity related to money laundering and other forms of financial fraud. This push, which started six years ago, was dormant during the last US administration but is now gathering new momentum.

Investment Advisors Who Might Be Affected

In 2015, a proposal was put forward by then-President Obama’s administration to widen the scope of money laundering and fraud detection by US financial entities. The draft of this proposal from August 2015 would have required certain investment advisors to adhere to the same money-laundering oversight policies as banks.

Per the 2015 draft, this “would apply to investment advisers that are required to be registered with the US Securities and Exchange Commission (SEC), including advisers to certain hedge funds, private equity funds, and other private funds.”

This policy was proposed back then but was not implemented, and it was not put into play under the Trump administration. There are now rumblings that it may be revived.

Why Are People Talking About This Now?

The transition in power has prompted some new attention to anti-laundering efforts, and it looks to have support across the aisle.

One source of support on record for this effort comes from the international, non-partisan Financial Accountability and Corporate Transparency (FACT) Coalition, an organization whose stated goal is “to address the challenges of a global economy and promoting policies to combat the harmful impacts of corrupt financial practices.”

In “The First 100 Days,” the FACT Coalition proposes that the Biden administration should “complete work on the proposed 2015 FinCEN rule to impose AML program and suspicious activity reporting requirements on registered investment advisers, including private equity funds and hedge funds.”

What This Means For You

FinCEN is the government’s enforcement agency. They would be responsible for the enforcement of these regulations.

Some of the possible requirements that could be asked of advisors include the following:

  • Establishing anti-money laundering (AML) programs
  • Reporting suspicious activity to FinCEN pursuant to the Bank Secrecy Act (BSA). This BSA quick guide is the current standard institutions follow to stay in compliance.
  • Filing Currency Transaction Reports (CTRs) and keep records relating to the transmittal of funds
  • Complying with the recordkeeping requirements of the BSA
  • Promptly producing documents related to investors

What Can You Do?

While there is no word of action being taken immediately, this is one issue to watch. We will continue to post any updates we find.

If you have insight into this issue, please drop me a line. We are looking to put together a roundtable discussion of how RIAs can stay in the loop on this issue. We welcome your input.

Midland Trust can execute your investment paperwork and transactions, bringing alternative investment expertise without the cost of hiring additional talent. As a qualified custodian, Midland Trust can be engaged to help Advisors comply with the Custody Rule and offer document safekeeping services as well. Learn more here.

Author: Adam Sypniewski, Sales Director at Midland IRA, Inc.