May 19, 2024

SEC and FinCEN propose customer identification rule for investment and reporting advisers

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 establish customer identification program (“CIP”) requirements for SEC-registered investment advisers (“RIAs”) and exempt reporting advisers (“ERAs”).  According to the notice of joint proposed rulemaking submitted by the SEC and FinCEN on May 13, 2023, the new rule would require RIAs and ERAs to develop and implement a CIP program that would reasonably identify and verify their customers’ identities.  If adopted, RIAs and ERAs would be required to meet CIP requirements similar to those established for financial institutions, such as broker-dealers and mutual funds.

The rule was proposed in an effort to safeguard the U.S. financial system by strengthening the anti-money laundering/countering financing of terrorist (“AML/CFT”) framework.  The SEC and FinCEN have each reported that the proposal cites the 2024 Investment Adviser Risk Assessment conducted by the Treasury Department, which reveals that the investment adviser sector has served as an entry point for illicit proceeds into the U.S. market, including funds associated with foreign corruption, fraud, tax evasion, and billions of dollars linked to Russian oligarchs.

According to the SEC and FinCEN, the proposed rule complements a separate proposal introduced by FinCEN in February 2024 that sought to subject RIAs and ERAs to certain AML/CFT program requirements and other filing obligations, including the submission of suspicious activity reports (“SARs”), by having them designated as “financial institutions” under the Bank Secrecy Act (“BSA”).

The joint proposed rule has been published on the SEC’s website and in the Federal Register, and public comments on the proposed rule will be accepted for a period of 60 days.

SEC Press Release | SEC – CIP Fact Sheet | Joint Notice of Proposed Rulemaking | FinCEN Press Release | Federal Register | Department of Treasury – 2024 Investment Adviser Risk Assessment