The Investment Adviser Association wants low-risk advisors and investors to be exempt from a money laundering and anti-terrorism proposal issued by the Treasury Department’s Financial Crimes Enforcement Network (FinCEN).

For the first time, the proposed rule would require all SEC advisors to establish anti-money-laundering programs as required by the Bank Secrecy Act (BSA), report all transactions over $10,000 and file suspicious activity reports (SARs).

The regulations “will apply to investment advisers that may be at risk for misuse by money launderers, terrorist financers, or other actors who seek access to the U.S. financial system for illicit purposes via investment advisers and threaten U.S. national security,” the Treasury department said in the proposal.

IAA General Counsel Gail Bernstein said in a comment letter to Treasury today that the proposal goes too far, blanketing all advisors regardless of their risk profile or type of business.

“The BSA does not need to be extended to all investment advisers with respect to all of their activities in order to have a comprehensive AML regime in the United States,” Bernstein wrote.

Instead, “excluding certain clients and activities from the proposal would strengthen SEC Advisers’ AML programs by allowing them to use their finite resources to address higher-risk activities and would avoid situations where imposing AML on SEC Advisers would be duplicative of regulatory efforts where the costs and operational challenges of compliance will significantly outweigh the marginal benefits,” Bernstein continued.

The IAA’s general counsel said such limits would make the proposal “risk-based and designed to fill identified gaps in the existing landscape rather than duplicate the protections that already exist.”

Currently the proposal “lacks sufficient tailoring to the unique business models and risk profiles of investment advisers. Adding these sweeping and duplicative requirements could unnecessarily burden advisers without providing significant additional AML benefit,” Bernstein said.

To address money-laundering risks while avoiding unnecessary practical and operational burdens, especially burdens on smaller advisors, the IAA’s recommended the following:

• Exempting smaller advisors that pose a lower AML risk.
• Exempting low-risk clients and activities to focus resources on higher-risk areas.
• Tailoring AML programs to advisors’ specific businesses.
• Leveraging existing AML efforts within the financial system.
• Providing a more reasonable timeframe for advisors to come into compliance with any new requirements.

Specifically, IAA wants  to exempt advisors with 100 or fewer employees from the AML program requirements of the proposal, or, at a minimum, smaller SEC advisors with 20 or fewer employees. “This would be consistent with FinCEN’s treatment of state-registered investment advisers, which we support,” Bernstein said.

Adding to the Treasury Department’s concerns, however, news broke last week that Morgan Stanley’s wealth management arm—one of the most profitable divisions in the bank—is being investigated by multiple regulators, including the Treasury Department, for alleged lax vetting of foreign and U.S. clients who posed potential money laundering threats dating back to at least 2020, according to a report in the Wall Street Journal.

Additionally, the Federal Reserve has warned Morgan Stanley that supervisory action against the bank may be pending.