Compliance is not as scary as it looks for the expected FINCEN anti-money laundering (AML) rules for investment advisors, a Securities and Exchange Commission expert said.

Making a good faith, common sense effort will be good enough, said SEC Enforcement Division Bank Secrecy Act specialist Eric Kringel on Friday.

However, he said merely adopting a boiler plate AML compliance program won’t be enough.

“Compliance needs to be tailored. There needs to be evidence you gave it thought,” said the SEC executive told attendees at the Investment Adviser Association’s annual compliance conference in Washington, D.C.

He said some of the fear in the industry comes from stiff fines levied against big banks in AML matters, but Kringel said the penalties were huge because of other violations tied into the cases.

AML rules for SEC registered investment advisors are expected to be finalized this summer with compliance obligations starting six months after. Broker-dealers and mutual funds have been subject to the requirements since 2006.

Kringel said it should be simple for advisors to decide when they need to make suspicious activity reports.

“If a transaction looks illegal, you don’t have to be convinced it is illegal. It is something you need to report,” he said.

For hybrid operations, he said investment advisors and broker-dealers will be able to file reports jointly.

Earlier in the day at the conference, participants were told the SEC Division of Economic and Risk Analysis (DERA) Director Mark Flannery said his division is looking for inexplicitly high operating costs at all types of funds as well as much higher than average investment returns.

One example of potentially abnormal costs DERA is watching for, he saud, is when a company sells assets to its funds through its broker-dealers at high mark-ups.

“DERA is at the very early stages of looking at risk at investment companies and the advisers they employ,” said Flannery.


Investment advisor and investment company cases have become a very consistently substantial part of enforcement activity at the SEC for years, Enforcement Division General Counsel Joe Brenner said at the event.

He noted advisors and investment companies accounted for about 15 percent of SEC enforcement actions in 2015.