The world of finance is on the brink of a significant transformation, especially for investment advisors in the United States. On February 15th, 2024, a pivotal announcement was made by the Financial Crimes Enforcement Network (FinCEN) that is set to redefine the landscape of anti-money laundering (AML) and counter-financing of terrorism (CFT) compliance.
Fenergo, a developer of SaaS-based solutions that empower financial institutions, has released an report shining a light on how investment advisors are impacted by the new regulatory landscape.
Through a proposed rulemaking notice, FinCEN is extending AML/CFT obligations to certain investment advisors as per the Bank Secrecy Act (BSA). This marks a momentous shift from the current regulatory environment, where investment advisors are not mandated to maintain AML/CFT programs or records under the BSA. The commentary period, open until April 15th, precedes the enforcement of these rules, projected to start in 2025.
This proposed rulemaking is not in isolation but a part of a broader trend toward tighter regulatory scrutiny over financial institutions, both on the buy-side and sell-side, it said. Previously, on July 31st, 2023, the SEC’s Division of Examinations issued a “Risk Alert,” highlighting significant findings from its examinations of broker-dealers and their compliance with AML regulations. This was followed by an announcement in October 2023 regarding the examination priorities for 2024, which include a closer look at investment advisors and a continued emphasis on AML programs. These developments indicate a clear trajectory towards more rigorous regulatory oversight in the financial sector.
The emphasis on AML/CFT compliance comes at a time when the financial penalties and reputational risks for non-compliance are more substantial than ever. Although the current proposal stops short of requiring investment advisors to implement a customer identification program (CIP) or collect beneficial ownership information, FinCEN has signalled potential future rulemaking in collaboration with the SEC to cover these areas. With SEC fines for non-compliance in areas such as AML and environmental, social, and governance (ESG) on the rise, the importance of proactive compliance management cannot be overstated. Investment advisors and asset management firms are thus encouraged to stay abreast of regulatory changes and bolster their compliance processes to mitigate risks effectively.
To assist investment advisors, asset managers, broker-dealers, and similar entities in navigating these impending changes, Fenergo has developed a comprehensive checklist. This resource is designed to help firms assess their current state of readiness and integrate AML/CFT obligations seamlessly into their operational frameworks. As the regulatory landscape evolves, staying informed and prepared is paramount for firms aiming to maintain compliance and safeguard their reputations in the increasingly scrutinised financial market.
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