Industry Insights

Proposed FinCEN Rules Could Affect Private Equity Groups

October 2015
Author:  Mark Burnside

Mark Burnside

Senior Managing Consultant


600 N. Hurstbourne Parkway, Suite 350
P.O. Box 22127
Louisville, KY 40252-0127 (40222)


The Financial Crimes Enforcement Network (FinCEN) recently issued a notice of proposed rulemaking to “… prescribe minimum standards for anti-money laundering programs … to be established by certain investment advisers and to require such investment advisers to report suspicious activity to FinCEN pursuant to the Bank Secrecy Act (BSA).”

The proposed rule would expand the definition of a financial institution (as it relates to BSA) to include investment advisors registered or required to register with the U.S. Securities and Exchange Commission (SEC). Because of this definition change, BSA requirements also could apply to:

  • Dually registered investment advisors (registered with the SEC as investment advisers and broker-dealers in securities) and advisors affiliated with or subsidiaries of entities required to establish anti-money laundering (AML) programs
  • Certain foreign investment advisors
  • Investment advisors to registered investment companies, including private equity groups
  • Financial planners
  • Pension consultants
  • Entities providing only securities newsletters and/or research reports

In addition, the proposal would assign responsibility for the examination of investment advisors to the SEC to ensure compliance.

Although current BSA requirements apply to banks, credit unions and broker-dealers, one apparent concern is whether those institutions have enough information to detect suspicious activity or potential money laundering without the information available to investment advisors.

Note:  The proposal isn’t inclusive of all aspects of BSA currently required of other financial institutions. For example, the rule won’t address aspects of customer identification and doesn’t address other recently proposed AML program requirements. However, the expectation is these will be addressed in relation to investment advisors through future rulemaking efforts between the SEC and FinCEN.

Here are the primary aspects of BSA/AML addressed in this proposal:

Anti-Money Laundering

  • Development of internal policies, procedures and controls – the proposal discusses the necessity of a risk-based approach; policies, procedures and controls must be established within six months of the final rule’s effective date
  • Designation of a “compliance officer” – responsibilities would include oversight of the BSA/AML program
  • Ongoing employee training
  • Independent audit function to test programs

Currency Transaction Reporting

The proposed rule would require investment advisors to file Currency Transaction Reports (CTRs) for currency transactions in excess of $10,000 conducted during a single business day. It also would replace the current requirement for investment advisors to file Form 8300 for transactions involving more than $10,000 of cash or certain negotiable instruments.

In addition, investment advisors will be required to monitor and report identified suspicious activity involving an aggregate of at least $5,000, which could include unusual wire activity, fraud or attempts to structure transactions to avoid CTR filing.

Information Sharing & Record-Keeping Requirements

The proposed rule would require investment advisors to adhere to regulations regarding information-sharing requests and special procedures established by the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001

In addition, the proposal would require compliance with certain record-keeping and travel rules. For example, investment advisors would be required to retain records for transmittals of funds ($3,000 or more) and to transmit information on these transactions to other financial institutions in the payment chain.

The current proposal can be found in the September 1, 2015, issue of the Federal Register. The comment period for the proposal ends November 2, 2015.

For more information on how this proposal could affect you, contact your BKD advisor.

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