RegTech Intelligence

The AML umbrella continues to open

JWG analysis.

Last week we wrote about thwarting financial crime through suspicious transaction reports (STRs) in the UK, and the Financial Conduct Authority’s (FCA) concern over the integrity, accuracy and coverage of STRs.  On the other side of the Atlantic, FinCEN is proposing to extend their anti-money laundering (AML) regime to investment advisers.


Closing the gaps

FinCEN and the Treasury Department have announced a proposal which would include investment advisers under the general definition of “financial institutions”.  This will compel investment advisers to set up AML programmes and, when necessary, report STRs.

It has been stated by FinCEN that “investment advisers are on the front lines of a multi-trillion dollar sector of our financial system” and “if a client is trying to move or stash dirty money, we need investment advisers to be vigilant in protecting the integrity of the sector”.

US authorities have made clear strides in obstructing money laundering and terrorist financing in recent years, and it seems that they are now concentrating on closing any remaining loopholes in the system.  FinCEN’s proposal should bridge the current gap by bringing hedge funds and financial advisers under the same AML framework.

Those that manage more than $100 million in funds will need to adopt the same AML procedures already in place for banks under these proposals.

Investment costs

One obvious result of this would be the cost impact on funds and investment advisers.  Until now, investment in funds has been a viable and effective way of avoiding the regulatory burden associated with equity markets.

The new AML practices and reporting requirements imposed on investment advisers and funds will be pricey, and the risk is that these costs will ultimately be passed on to investors.  Investment advisers will need to grow their compliance departments and introduce new technology systems for tracking, processing, analysing and storing the information which will be needed to identify and report suspicious transactions.

Stopping short?

Despite FinCEN’s and the Treasury Department’s obvious best efforts to tackle money laundering and tighten up the existing AML framework, they have seemingly – and somewhat confusingly – left out a significant measure.  The proposal makes no mention of the requirement to verify account name holders, arguably a basic and fundamental measure in helping to prevent money laundering.

Whilst AML has been a key area of focus for US regulators it seems there is still some way to go in closing the gaps.

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