FinCEN 2015 Proposed Investment Advisor Rule
Recent reports leaked to the media shed light on federal authorities’ concerns with the financial crime risks connected to investment advisors in the private investment fund industry. According to a leaked FBI intelligence bulletin prepared in May 2020, federal authorities have “high confidence” that hedge fund managers and private equity firms are vulnerable conduits for money laundering. In that report, the FBI warns that the private fund industry lacks adequate anti-money laundering (AML) controls and oversight and has privately called for greater scrutiny.
Regulators too have long considered the lack of AML regulation over investment advisors a vulnerability in the US Bank Secrecy Act/Anti-Money Laundering (BSA/AML) regime. Despite multiple attempts to close this gap, BSA/AML regulations still do not incorporate this sector. Nevertheless, recent events suggest that this may change.
In 2020, the Securities and Exchange Commission’s (SEC) Office of Compliance Investigations and Examinations (now referred to as the Division of Examinations) announced in its 2020 Examination. Priorities that it will prioritize conducting risk-based examinations of certain Registered Investment Advisors (RIAs) for AML compliance1. Moreover, Guidehouse anticipates that the Biden administration may take a more aggressive regulatory approach, likely consistent with closing the investment advisor hole in the AML regulatory regime.
This client alert summarizes the history of attempted AML regulatory oversight of investment advisors and outlines actions investment advisors in the private fund industry2 should consider.
Guidehouse can help entities in and working with the private fund industry assess their compliance programs to prepare for regulatory updates and to mitigate risks, including developing and implementing updates to operations, policies, procedures, controls, and technology.
Its areas of relevant expertise include the following:
Guidehouse can quickly review and assess your BSA/AML compliance program to determine whether it is sound, to identify gaps or weaknesses, and/or to conduct training on BSA/AML and Sanctions compliance.
Guidehouse is well-equipped to make an individualized assessment of your unique circumstances and offer innovative advice and solutions for responding to heightened regulatory requirements.
Special thanks to Chelsea Simkin for contributing to this article.