Hedge Funds, PE Firms Included in Proposed FinCEN AML Rules

Aug 25 2015 | 7:47pm ET

Certain money managers, private equity firms and hedge funds would be included in new anti-money laundering compliance requirements proposed by the U.S. Treasury’s Financial Crimes Enforcement Network, known better as FinCEN.  

The long-expected proposal expands the definition of “financial institution” to broadly include SEC-registered investment advisors, which, depending on structure, can in turn include asset managers, private equity firms and hedge funds. They would be required to develop specific anti-money laundering programs as well as procedures to report activity defined by FinCEN as suspicious.

The proposed rulemaking states that FinCEN would delegate examination authority for compliance to the SEC. The move would bring hedge funds and other asset managers under the same Bank Secrecy Act regulations as those faced by mutual funds, broker-dealers, banks, and insurance companies.

“Investment advisors are on the front lines of a multi-trillion dollar sector of our financial system,” said FinCEN director Jennifer Shasky Calvery, in a press release. “If a client is trying to move or stash dirty money, we need investment advisors to be vigilant in protecting the integrity of their sector.”

While potentially addressing what FinCEN believes are vulnerabilities within the U.S. financial system, the proposed rule would increase compliance costs and administrative burdens on firms, many of which are small with few employees.

A similar effort was proposed in 2003 but was abandoned during the 2008 financial crisis. The proposal is now subject to a 60-day comment period, which will begin once the rule is published in the Federal Register.

Comments, which will be made part of the public record, can be made by going to the Federal rulemaking portal at http://www.regulations.gov and referencing 1506-AB10 in the submission.

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