On May 21, 2024, the Securities and Exchange Commission (SEC) and the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) jointly published a notice of proposed rulemaking (NPRM) that would require investment advisers registered under the Investment Advisers Act of 1940 (RIAs) and exempt reporting advisers (ERAs) (collectively, “investment advisers”) to maintain customer identification programs (CIPs). Many types of U.S. financial institutions are required to maintain CIPs as part of their anti-money laundering (AML) compliance program and must, as part of the CIP rules, collect, verify, and retain certain identifying information about customers. Importantly, the NPRM does not yet have the force and effect of law, but indicates how FinCEN and the SEC intend to implement more specific AML requirements for investment advisers, subject to written comments from the public before a final rule is promulgated.

The NPRM follows a February 2024 FinCEN proposal to designate RIAs and ERAs as “financial institutions” under the so-called Bank Secrecy Act (BSA), subjecting them to AML and countering the financing of terrorism (CFT) program requirements that are similar to those imposed on other types of U.S. financial institutions, including broker-dealers of securities. Although the February 2024 proposed rule was issued solely by FinCEN, as required by the USA PATRIOT Act of 2001 and the BSA, as amended, for CIPs, FinCEN is publishing this NPRM jointly with the SEC, the federal functional regulator for investment advisers.

These proposals follow a Treasury risk assessment finding that the investment adviser industry has served as an entry point into the U.S. market for illicit proceeds associated with foreign corruption, fraud, tax evasion, and other criminal activities. They are also part of a broader U.S. agenda to patch up potential gaps in regulations designed to counter illicit finance.