SEC Commissioner Opposes Applying AML Obligations to Advisers

SEC Commissioner Hester M. Peirce urged FinCEN to drop a proposal that would include "investment adviser" in the definition of "financial institution" under the Bank Secrecy Act ("BSA") which would, thereby, require advisers to implement AML/CFT programs and comply with recordkeeping requirements. (See related coverage.)

In a statement directed to FinCEN Director Andrea Gacki, Ms. Peirce said "[n]one of the justifications offered in support of this latest proposal is convincing or compelling." Ms. Peirce asserted that FinCEN's stated concerns regarding registered investment advisers ("RIAs") and exempt reporting advisers ("ERAs") serving as "entry point[s]" for financial criminals or hostile state actors, due to their lack of minimum standards, AML/CFT programs, and their exemption from reporting suspicious activities to FinCEN, are overstated. She said that broker-dealers, mutual funds, FCMs and banks are already heavily regulated under the BSA. She argued that adviser-related activity would likely fall "within the regulatory ambit of some or all of those covered financial institutions."

Ms. Peirce said that the proposal "is thin" on actual examples of RIAs serving as gateways to illicit activity. She argued that if such a gap existed, there should be many examples of how advisers were used by financial criminals. She also said that the data cited in support of imposing BSA obligations on RIAs and ERAs lacks context.

Ms. Peirce raised concerns as to the potential impact of the proposal on smaller advisers, particularly as the rules impose more costs on RIAs "already staggering under the weight of two years of SEC regulatory excesses, along with new mandates from other regulators." Ms. Peirce also said that the proposed compliance date of twelve months is "wholly unreasonable."