S5:E7 | Reviewing the FinCEN AML Rule Proposal | Compliance in Context

The Securities Compliance Podcast: Compliance In Context

Welcome back to the Compliance In Context podcast! On today’s show, we perform a comprehensive review a of rule proposal from 2024 with the biggest long-term impact to the RIA community—namely AML rule proposal from FinCEN. In our Headlines section, we review recent decision from the Fifth Circuit court to stay the new DOL Fiduciary Rule that was issued earlier this year. And finally, we’ll wrap up today’s show with another installment of What’s On My Mind, where we take a quick moment to visit the 2024 Paris Olympics and review how some of the greatest athletes in the world can give us a critical insight into being the best versions of ourselves and building our own firm’s best compliance program.

Show

Headlines

• New DOL Fiduciary Rule and the amendments to PTE 2020-02 and PTE 84-24 stayed by two district courts in Texas

Interview with Ed Wegener and Laura Goldzung

• Reviewing the FinCEN Rule Proposal to apply AML/CFT (Countering the Financing of Terrorism) requirements pursuant to the Bank Secrecy Act
• What does the rule proposal say? What will investment advisers need to do?
• What kind of training should be performed in this area? What other preparations will advisers need to make?
• What about dual registrants? Can the AML programs of broker-dealer affiliates be leveraged?
• What are some key factors that RIAs will need to keep in mind if the proposal is adopted?
• What kind of expectations should be in place from a compliance perspective?
• Is there required testing that needs to be performed?
• What requirements are placed on AML Officers?
• What kind of ongoing due diligence will be necessary or expected?
• What is the cost of compliance in this area? Do you anticipate the regulatory focus and related costs going up or down in the future?

What’s On My Mind

• What can Olympic athletes teach us about developing the best compliance program possible and not letting immediate perfection becoming an impediment to growth

Quotes

10:26 – “Earlier this year, FinCEN proposed adding investment advisors as designated financial institution for AML and CFT purposes. And then additionally following on that, FinCEN and the SEC issued a joint proposal that would require investment advisors to comply with the customer identification and verification requirements, as well as the requirements to identify and verify identities of certain beneficial owners of legal entity customers. So in a nutshell, the impact will be that once this rule becomes effective and we meet the implementation date, investment advisors are going to have virtually the same requirements that certain other financial institutions have with respect to AML programs, including broker dealers. So many investment advisors who have affiliated broker dealers are well aware of those requirements, but we’re working with all of our investment advisor clients to understand what those expectations and requirements may be and how they can prepare for that.” ~ Ed Wegener

20:54 – “In the proposal, Vincent talked about the training needing to be designed based on the roles of the individuals that are being trained. So you have to distinguish different roles. And those roles will likely determine the nature, the scope, and the frequency of the training for each of those roles. So people who are very involved in the AML program likely are going to need more regular training. Those individuals that might not be as involved in the AML program, but touch certain aspects of it, like client-facing people that are dealing with account opening and things like that, will at a minimum need to be trained at least annually” ~ Ed Wegener

24:20 – “One of the aspects of the AML requirements that impacts training are the requirements to monitor for, identify, and report suspicious activities. So you want to make sure that as you develop your programs, that you’re looking at, what are the particular risks for money laundering, CFT, other illicit activities that my firm is at risk for, how are we going to monitor for those items? So what sort of monitoring systems are we going to put in place? And making sure that the alerting systems that you have are geared towards those particular red flags that you need to identify based on the risks associated with your firm. But there are a lot of activities that aren’t the types of things that will be picked up through a monitoring system or exception reporting system, things like account opening and issues red flags that might pop up during account opening. So it’s also important in addition to having a system for monitoring for suspicious activities that you’re training your staff—especially those client-facing staff on what are the particular red flags that they might come across that you need to escalate for further review because one of the areas that the regulators really hone in on looking at AML programs—is how are you monitoring for suspicious activities when those are identified how are you following up on those items and importantly are you documenting both the identification and follow up to those items.” ~ Ed Wegener

25:53 – “I think too that it’s very important to have qualified people in the firm who have some AML experience. You can’t just assign the baseball hat to somebody and say, okay, you’re in charge of monitoring. When they have no idea with everything, even red flags. It’s a red flag. Most people are not doing with red flags. So that’s not to take anything away from the talented salespeople, you know, all those very important functions in the advisory firm. But AML is a living, daily living thing. People who are managing all the parts of it really need to be skilled and understand not only what they should do, but why they should too.” ~ Laura Goldzung