RIA firms could be surprised by pending anti-money laundering rules.
The final new rules, expected to be published this year by the Treasury Department’s Financial Crimes Enforcement Network (FinCEN), will put advisory firms on the hook for finding and reporting on a range of suspect activity, according to compliance experts speaking Wednesday at TD Ameritrade’s Elite LINC conference in Laguna Niguel, Calif.
RIA firms will have to develop internal policies and procedures to catch suspect activity, designate an AML compliance officer, provide ongoing employee training and have an independent auditor test the program.
FinCEN’s regulations will apply to SEC-registered advisory firms. For now, state-registered advisors are exempt.
“A lot [of advisors] don’t know what’s coming down the pike,” said Tom Nally, president of TD Ameritrade Institutional, in an interview. FinCEN’s advisor rule “has kind of been hidden behind the DOL rule, like the car behind the bus.”
“The government wants the person closest to the customer to understand whom they’re dealing with,” said Susan Boudrot, chief compliance officer at TD Ameritrade, during a panel discussion about the new AML rules.
Any suspected illegal activity like fraud (either by a client or against a client) and insider trading is also reportable under FinCEN rules. That would include cases where clients are victims of hacked e-mail accounts and “ransom ware.”
Suspicious activity reports (SARS) must be filed on questionable transactions or fraudulent incidents involving $5,000 or more and currency transaction reports are required for cash withdrawals of $10,000 or more per day.
Advisors cannot tell clients when they report on them.
“That really changes the dynamic somewhat of the relationship [advisors] have with clients,” Nally said.