FinCEN Final Rule on Anti-Money Laundering Filing Requirements
FinCEN Exempts Mid-sized and Multi-State Advisers from the Definition of Investment Adviser in Final Rule on Anti-Money Laundering Filing Requirements on February 15, 2024, the Financial Crimes Enforcement Network (FinCEN) published a notice of proposed rulemaking (NPRM) on Anti-Money Laundering/Countering the Financing of Terrorism Program and Suspicious Activity Report Filing Requirements for Registered Investment Advisors and Exempt Reporting Advisers. The proposed rule would include certain investment advisers in the definition of “financial institution” under the Bank Secrecy Act (BSA), prescribe minimum standards for anti-money laundering/countering the financing of terrorism (AML/CFT) programs to be established by covered investment advisers, require covered investment advisers to report suspicious activity to FinCEN pursuant to the BSA and make several other related changes to FinCEN regulations.
On May 15, 2024, the Office of Advocacy (Advocacy) submitted comments on the FinCEN’s proposed rule. Advocacy expressed concerns about FinCEN’s decision to use the Securities and Exchange Commission’s (SEC) size standard for small advisors. The SEC defines small advisors as those who are managing less than $25 million in customer assets. However, the SBA size standard for investment advisors is $47 million in annual receipts.
Advocacy asserted that it is inappropriate to use the SEC’s small entity definitions for this rule. Advocacy also encouraged FinCEN to consider additional less costly alternatives for small entities.
The Investment Adviser Association (IAA) also questioned the use of the SEC’s size standard in its comment letter. IAA asserted that it is inappropriate. Indeed, IAA filed a petition for rulemaking to address the SEC’s size standard. The IAA did not believe the SEC’s definition represents the industry.
FinCEN published the final rule in the Federal Register on September 4, 2024. In response to the concerns raised by Advocacy, FinCEN decided to exempt from the definition of “investment adviser” both mid-sized and multi-state advisers in the final rule resulting in $14.5 million in cost savings for small entities. Size standards are important for assuring that small entity impacts are considered properly.
AUTHOR:
Jennifer Smith
Assistant Chief Counsel
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