US Treasury’s FinCEN Unit: New AML Rules for Fund Advisers

Per FinCEN’s latest draft ruling, investment advisers would need to adopt programmes designed to secure against money laundering and the financing of terrorism
The Financial Crimes Enforcement Network (FinCEN), a US Treasury unit, proposes new regulations requiring investment advisers to prevent money laundering

A unit of the US Treasury, the Financial Crimes Enforcement Network (FinCEN), has proposed new regulations that would require investment advisers to help prevent money laundering and the financing of terrorism. 

The move would, in theory, help secure fintech funding as the industry looks to bounce back from a dip in investments for 2023, alongside all other industries.

It also comes after FinCEN proposed a similar regulatory update for the real estate sector, amid a US Treasury effort to secure holes in the US regulatory system and block corrupt foreign officials and sanctioned individuals from accessing the US financial system. 

FinCEN: Levelling the investment playing field 

Per FinCEN’s latest draft ruling, investment advisers would need to adopt programmes designed to secure against money laundering and the financing of terrorism. 

This rule, if approved, would apply to US Securities and Exchange Commission (SEC) registered advisors, as well as those who report to the SEC but are exempt from registration. 

What’s more, the new ruling would also require investment advisors to report any detected suspicious activity to FinCEN, as banks are currently required to do. 

Investment advisors will not be required to have customer identification programmes as part of the proposal, as FinCEN hopes to include this in future regulations proposed in partnership with the SEC.

FinCEN Director Andrea Gacki says: "Investment advisers are important gatekeepers to the American economy, overseeing the investment of tens of trillions of dollars."

Indeed, the regulatory update proposed by FinCEN comes after the organisation found cases in which sanctioned individuals, criminals and representatives from foreign nations like China and Russia, used investment advisors to gain access to the US financial system. 

The most common areas targetted by alleged criminals and facilitated by investment advisors were US assets such as securities, real estate and sensitive new technologies like artificial intelligence.

While the benefits of this regulatory proposition for furthering AML and halting the financing of terrorism seem evident, it’s worth remembering a similar regulatory update was raised in 2015 but never passed into law. 

This time around, FinCEN will hope it does, as the proposal sits and waits amid a period of public commentary until mid-April 2024, where it can either be put through for adoption or further modified.

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