Advocacy Submits Comments on SEC and FinCEN Joint Proposed Rule to Require Certain Investment Advisers to Establish and Maintain Customer Identification Programs

On May 21, 2024, the Financial Crimes Enforcement Network (FinCEN) and the Securities and Exchange Commission (SEC or Commission) jointly published a notice of proposed rulemaking (NPRM) on Customer Identification Programs for Registered Investment Advisers and Exempt Reporting Advisers. The rule would require certain investment advisers to establish and maintain a customer identification program (CIP) to enable them to form a reasonable belief as to the genuine identity of their customers.

Advocacy is concerned that the agencies may have significantly underestimated the potential impact of the proposed rulemaking on small entities because it used an inappropriate size standard. The SEC’s size standard used in the rulemaking has not been updated in over 25 years and does not adequately represent the investment adviser industry today.

There are over 17,000 small advisers estimated to be in the investment advisor industry using the SBA size standard. However, the SEC size standard estimates only 389 small advisers would be affected by the rule.

As Advocacy’s comments made clear, there are significant differences between the SBA size standard and the SEC’s size standard, resulting in an underestimation of affected small entities to the proposed rule. The SBA size standard for investment advisors, NAICS code 523940, is $47 million in average annual receipts, while the SEC’ defines small investment advisers as those that are managing less than $25 million in assets.

For more information, please contact Assistant Chief Counsel Graham Owens at (202) 205-6701 or Graham.Owens@sba.gov.

Document

Comment Letter – SEC FinCEN CIP Investment Advisers (PDF, 84.5 KB)