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FCC regulations that wealth & asset managers should look out for 

Regulatory scrutiny of the asset management sector is increasing in the US and across the globe, and the cost of compliance is growing.

Aidan Houlihan
March 14, 2024

The wealth and asset management sector plays a huge role in national economies, and provides important services to consumers, helping them to manage their assets and meet their financial goals. As an imperative part of the financial system, the sector is at risk of abuse by bad actors looking to launder money.  

Regulatory scrutiny of this sector is increasing in the US and across the globe, and the financial costs of compliance failures are growing steeply. Even greater is the cost of reputational damage from non-compliance. The importance of effective anti-money laundering and counter-terrorist financing (AML/CTF) program has never been more evident.  

Increased regulatory scrutiny for the wealth and asset industry in the US

The Financial Crimes Enforcement Network (FinCEN), a unit of the US Treasury Department, released a new proposal in February of 2024 which will require ‘investment advisors’, or wealth & asset managers, to adopt formalized anti-money laundering (AML) programs.  

According to FinCEN, the new proposed rule would require investment advisors registered with the Securities and Exchange Commission (SEC), also known as registered investment advisors (RIAs) and exempt reporting advisors (ERAs) to do the following:  

  • Implement an AML/CFT program - The program listed above would have to include a designated AML compliance officer, internal training and regular testing. It will also need to be approved by the board of directors.
  • File Suspicious Activity Reports (SARs) - Firms would need to screen client activity for money laundering risks and create timely SARs reports to FinCEN in circumstances that require immediate action.  
  • Keep records such as those relating to the transmittal of funds - i.e., comply with the Recordkeeping and Travel Rule.
  • Fulfill other obligations applicable to financial institutions subject to the BSA and FinCEN’s implementing regulations.

Currently, this will cover any advisors that manage a minimum of $25 million USD in assets, however, future regulation may also include smaller firms, which are state-regulated. Also to be explored in the future will be the addition of a Customer Identification Program (CIP) requirement, with a formalized set of instructions for firms to identify customers to prevent money laundering. While this is an important part of AML strategies, the above proposals will be a good starting point to ensure firms have more stringent screening and monitoring processes.  

Looking at regulation for the wealth and asset industry across the globe

The increased regulatory scrutiny is not just something to look out for in the US. On the other side of the pond, the UK Financial Conduct Authority (FCA) recently published the ‘Dear CEO letter’ on 5 March 2024 highlighting inadequate resourcing and oversight of financial crime issues and requirements, and discrepancies between firms registered and actual activities. This has stemmed from identified failures that could lead to criminals easily abusing the system for money laundering, which could damage the integrity of UK financial markets.

Similarly, the Australian Transaction Reports and Analysis Centre, Austrac, the government regulator for anti-money laundering, has laid out guidance for understanding where customers obtain their funds and wealth. The guidance lays out that financial institutions should review information about the customer in accordance with the institutions’ customer due diligence obligations, reporting it where necessary. Highlighted in its 2024 regulatory priorities, is accurate and timely reporting of suspicious transactions.

What does this mean for wealth & asset managers?

The US proposal will undoubtedly improve AML efforts in the country, protecting consumer assets and providing law enforcement with the relevant information to safeguard against criminal activity. The global sentiment is in line with that of the US regulator, emphasizing the need for adequate due diligence and timely reporting, to maintain the integrity of the entire financial system.  

Stringent AML controls across the industry will help level the playing field across the wealth & asset management sector, mitigating targeted financial crime from bad actors who could potentially target institutions with weaker AML/CFT strategies in place. Strengthening AML policies is not a regulatory burden, but a differentiator in the market, and an important part of upholding economies.

Learn how to transform compliance from a burden to a strategic asset in this Napier AI whitepaper.  

Photo by Roberto Júnior on Unsplash

Aidan brings with him over 20 years of truly global financial services experience having spent many years in Hong Kong, Bermuda & NYC. Aidan has extensive experience as a Managing Director in Sales Leadership, Operational Management, Business Strategy & Product at major international banks including Deutsche Bank & BNY Mellon. He was most recently Global Head of Business Development & Relationship Management at Fixnetix-DXC, specializing in market infrastructure technologies & market data.
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