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.


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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