They’ve been talking about it for
years, but it looks like regulators are making motions to finally enforce
tighter regulation on AML for investment advisors. We think they’re serious
about it this time. Although most other financial regulations are likely to be
scaled back under the present administration, cracking down on the financial
power of terrorism seems to have picked up steam.[1]
If you’re an investment advisor, read on to hear about the provisions of the
applicable law as well as what impact it will likely cause.
2017 AML Standards
While banks, broker-dealers, investment
banks, and insurance companies currently have had to abide by AML standards under
the Bank Secrecy Act for years, there are rumblings that the breadth will
expand to include investment management companies.[2]
Registered Investment Advisor (RIA) firms are required to file with either the state
in which they do business or the SEC. This is determined by such factors as number
of clients, assets under management, place of domicile, location of clients,
etc. These firms include traditional registered investment advisor entities,
typically comprised of financial professionals who manage individual or
institutional money for a fee in accordance with fiduciary standards. Certain hedge
funds and private equity firms who offer pooled investment vehicles must also
register as RIA firms. It is important to note that in some cases, investment
advisors are not required to become RIA firms at all if they qualify for a de minimus exemption by having less than
a certain amount of clients in a particular state.
Investment advisors should refer to
the FINRA manual for further information on Rule 3310 for the basic
tenets of a comprehensive AML compliance program. Among other requirements, an AML program should
be tailored to the investment advisers business model, compliant with AML/BSA
standards, and tested independently on an annual basis. In addition, the
identity of new clients/investors needs to be verified, transactions need to be
analyzed and any suspicious activity needs to be reviewed. Further, employees of the advisor must be
trained.[3]
Industry Impact
Unfortunately, in our view, this movement
is going to burden small to medium sized RIA firms, most of whom do not have in-house
compliance teams. In such cases, the onerous cost of adhering to applicable law
only increases with each new regulation imposed. This new development poses a
major opportunity for technology and compliance vendors who serve this niche
market. Small or medium sized firms even with in-house resources tend to lack
the resource capacity to maintain such comprehensive policies and procedures
satisfactorily.
For more information about how to
ease the business impact of AML standards and other compliance inquiries,
please email Gary Swiman of COMPASS Regulatory and Compliance Advisers at GSwiman@compassadvisers.net,
or Larry Wagner at LWagner@compassadvisers.net.
[1]
Corbin, Kenneth. “Anti-money laundering rule looms for advisers.” Financial Planning. Source Media, 8
March 2017. Web. Retrieved on 11 April 2017 from https://www.financial-planning.com/news/anti-money-laundering-rule-looms-for-advisers
[2]
Ibid.
[3]“3310.
Anti-Money Laundering Compliance Program.” FINRA,
(n.d.),Web. Retrieved on 10 April 2017 from http://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=8656
No comments:
Post a Comment