DISCLAIMER: This post was last modified on 15 July 2024. Some information in this article may not be updated.

In May 2024, the Securities and Exchange Commission (SEC) and the Financial Crimes Enforcement Network (FinCEN) of the Department of the Treasury jointly proposed a new rule that would subject SEC-registered investment advisers (RIAs) and exempt reporting advisers (ERAs) to the requirements of the customer identification program (CIP).  

The proposed rule aligns with existing requirements that mandate the adoption and implementation of CIPs by banks, brokers or dealers and other financial organizations. By enhancing the anti-money laundering and combating the financing of terrorism (AML/CFT) framework for the investment adviser industry, the proposal aims to stop illicit finance activities involving the clients of investment advisers.  

More about the proposed rule

The proposal requires RIAs and ERAs to develop appropriate measures to identify and verify their customers’ identities to establish a reasonable belief that they know their customers’ true identities. Under the proposed rule, it would be more challenging for criminal or illegal parties to build customer connections with investment advisers, which includes using fictitious identities to finance terrorism, launder money or engage in other illicit finance activities.  

Following a separate FinCEN proposal in February 2024, the proposed rule will classify RIAs and ERAs as “financial institutions” under the Bank Secrecy Act (BSA) and require them to comply with AML/CFT program guidelines and filing requirements for suspicious activity reports (SARs). According to a Treasury risk assessment cited in that proposal, the investment adviser sector has acted as a gateway for illicit proceeds linked to fraud, tax evasion, foreign corruption and other criminal activities to enter the US market.  

What are the CIP requirements?

As the proposed rule mandates, advisers must develop, document and maintain a written CIP suitable for its size and business. 

• Identification Verification: The CIP must obtain each customer’s information and contain risk-based procedures for verifying their identity to form a reasonable belief that it knows the customer’s true identity.  
• Recordkeeping: The CIP must include procedures for recording and maintaining a record of all information obtained under its verification process.  
• Comparison with Government Lists: The CIP must include reasonable procedures for determining whether a customer is on any Federal government agency’s list of known or suspected terrorists or terrorist organizations.  
• Customer Notice: The CIP must include procedures for giving customers notice in advance when an adviser requests information to verify their identity.  

If adopted, the proposed rule would require covered investment advisers to comply with it within six months of the final rule’s effective date, but no earlier than the compliance date of the AML/CFT proposed rule. The deadline for comments on the proposed rules is 22 July 2024.  

How can Bolder help

Adopting the proposed rule would impose extensive requirements on advisers to confirm the identity of their customers. It would be crucial for advisers to review their CIP and anti-money laundering procedures in order to maintain compliance.  

Bolder Group can help advisers fulfill their obligations regarding customer identification. Our team of experts is available for consultation, and we offer comprehensive compliance services to assist you with your CIP requirements. 

For any questions, contact our team today. 

We will provide more information regarding the new rule once an update or development becomes available.   

Bolder Group does not provide financial, tax or legal advice and the information contained herein is meant for general information purposes only. We strongly recommend that before acting on any of the information contained herein, readers should consult with their professional advisers. The Bolder Group accepts no liability for any errors or omissions in the information, or the consequences resulting from any action taken by a reader based on the information provided herein.

Bolder Group refers to the global network of independent subsidiaries of Bolder Group Holding BV. Bolder Group Holding BV provides no client services. Such services are provided solely by the independent companies within the Bolder Group which are each legally distinct and separate entities and have no authority (actual, apparent, implied or otherwise) to obligate or bind Bolder Group Holding BV in any manner whatsoever. The operations of the Bolder Group are conducted independently and have no affiliation with third party financial, tax or legal advisory firms or corporations.