IAA Recommends Changes to Anti-Money Laundering Rule for Small RIAs 

The Investment Adviser Association (IAA) is advocating for an exemption for low-risk advisors and investors from a proposal by the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) that aims to combat money laundering and terrorism. 

The proposed rule would mandate that all advisors registered with the Securities and Exchange Commission must implement anti-money-laundering programs in accordance with the Bank Secrecy Act (BSA). Additionally, they are obligated to record all transactions above $10,000 and submit suspicious activity reports (SARs). 

The regulations “will apply to investment advisors that may be at risk for misuse by money launderers, terrorist financers, or other actors who seek access to the U.S. financial system for illicit purposes via investment advisors and threaten U.S. national security,” the Treasury department said in the proposal. 

In a comment letter to Treasury, Gail Bernstein, General Counsel of the IAA, said the proposal is excessive since it applies to all advisors, regardless of their risk profile or type of business. “The BSA does not need to be extended to all investment advisors with respect to all of their activities in order to have a comprehensive AML [Ant-Money Laundering] regime in the U.S.” 

The IAA has proposed measures to mitigate the dangers of money laundering, while minimizing the impact on smaller advisors, including exempting smaller advisors that pose a lower AML risk; exempting low-risk clients and activities to focus resources on higher-risk areas; tailoring AML programs to advisors’ specific businesses; leveraging existing AML efforts within the financial system; and providing a more reasonable timeframe for advisors to come into compliance with any new requirements. 

IAA seeks to grant an exemption to advisors who have 100 or less employees from the AML program criteria outlined in the proposal. Alternatively, smaller advisors regulated by the SEC with 20 or fewer employees should also be exempted. 

“This would be consistent with FinCEN’s treatment of state-registered investment advisors, which we support,” Bernstein said.