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SEC PROPOSES CUSTOMER ID PROGRAM FOR RIAS


THE RULE WOULD MAKE IT HARDER FOR ANYONE TO USE A FALSE IDENTIFY TO ESTABLISH A
RELATION WITH AN ADVISOR.

By Holly Deaton
May 14, 2024
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Illustration by RIA

The Securities and Exchange Commission and the U.S. Department of the Treasury’s
Financial Crimes Enforcement Network (FinCEN) proposed a joint new rule on
Monday that would require RIAs and exempt reporting advisors (ERAs) to establish
customer identification programs (CIP) in a bid to stop money laundering and the
financing of terror.



Under the proposed rule, advisors “would be required to implement reasonable
procedures to identify and verify the identity of their customers,” the SEC and
FinCEN said in a statement. They would also be required to maintain records of
the methods and information used to verify their customers’ identity. Advisors
would also need to determine whether their customers have appeared on any
federal list of known or suspected terrorists.



“The proposed rule is designed to make it more difficult to use false identities
to establish customer relationships with investment advisors,” SEC Chair Gary
Gensler said in a statement. “I support this proposal because it could reduce
the risk of terrorists and other criminals accessing U.S. financial markets to
launder money, finance terrorism, or move funds for other illicit purposes.”



In 2001, Congress used the Patriot Act to amend the Bank Secrecy Act to require
financial institutions to implement CIP. The proposal is designed to align RIAs
and ERAs’ CIP requirements with the CIP requirements faced by other financial
institutions, such as brokers or dealers that work with securities and mutual
funds.



The proposed rule complements a FinCEN proposal from February that would require
RIAs to file suspicious activity reports as well as take other anti–money
laundering measures.



“Criminal, corrupt, and illicit actors have exploited the investment advisor
sector to access the U.S. financial system and launder funds,” FinCEN Director
Andrea Gacki said in a statement. “This proposal would help investment advisors
better identify and prevent illicit actors from misusing their services, while
advancing a harmonized set of CIP obligations.”



A comment period for the proposal will remain open for 60 days after its
publication in the Federal Register.

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