Customer Identification Programs for Registered Investment Advisers and Exempt Reporting Advisers

DEPARTMENT OF THE TREASURY <SUBAGY>Financial Crimes Enforcement Network</SUBAGY> <CFR>31 CFR Part 1032</CFR> <RIN>RIN 1506-AB66</RIN> SECURITIES AND EXCHANGE COMMISSION <CFR>17 CFR Part 275</CFR> <DEPDOC>[Release No. BSA-1; File No. S7-2024-02]</DEPDOC> <RIN>RIN 3235-AN34</RIN> <SUBJECT>Customer Identification Programs for Registered Investment Advisers and Exempt Reporting Advisers</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Financial Crimes Enforcement Network (“FinCEN”), Department of the Treasury; Securities and Exchange Commission (“SEC” or “Commission”). <HD SOURCE="HED">ACTION:</HD> Joint notice of proposed rulemaking. <SUM> <HD SOURCE="HED">SUMMARY:</HD> The Department of the Treasury and the SEC are jointly issuing a proposed rulemaking implementing the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 with regard to certain investment advisers. If, as proposed in a separate rulemaking, certain investment advisers are included in the definition of “financial institution” under the Bank Secrecy Act, the Secretary of the Treasury and the SEC will be required to jointly prescribe a regulation that, among other things, requires investment advisers to implement reasonable procedures to verify the identities of their customers. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> Written comments on this notice of joint proposed rulemaking (“NPRM”) must be submitted on or before July 22, 2024. </EFFDATE> <HD SOURCE="HED">ADDRESSES:</HD> <E T="03">Treasury:</E> Comments may be submitted by any of the following methods: • <E T="03">Federal E-Rulemaking Portal: http://www.regulations.gov.</E> Follow the instructions for submitting comments. Refer to Docket Number FINCEN-2024-0011. • <E T="03">Mail:</E> Policy Division, Financial Crimes Enforcement Network, P.O. Box 39, Vienna, VA 22183. Refer to Docket Number FINCEN-2024-0011. Please submit comments by one method only. <E T="03">SEC:</E> Comments may be submitted to the SEC by any of the following methods: <HD SOURCE="HD2">Electronic Comments</HD> • Use the SEC's internet comment forms ( <E T="03">https://www.sec.gov/rules/2024/05/cip</E> ); or • Send an email to <E T="03">rule-comments@sec.gov.</E> Please include File Number S7-2024-02 on the subject line. <HD SOURCE="HD2">Paper Comments</HD> • Send paper comments to Secretary, U.S. Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090. <FP> All submissions should refer to File Number S7-2024-02. This file number should be included on the subject line if email is used. To help the SEC process and review your comments more efficiently, please use only one method of submission. The SEC will post all comments on the SEC's website ( <E T="03">https://www.sec.gov/rules/2024/05/cip</E> ). Comments also are available for website viewing and printing in the SEC's Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Operating conditions may limit access to the SEC's Public Reference Room. Do not include personally identifiable information in submissions; you should submit only information that you wish to make available publicly. The SEC may redact in part or withhold entirely from publication submitted material that is obscene or subject to copyright protection. </FP> Studies, memoranda, or other substantive items may be added by the SEC or staff to the comment file during this rulemaking. A notification of the inclusion in the comment file of any such materials will be made available on the SEC's website. To ensure direct electronic receipt of such notifications, sign up through the “Stay Connected” option at <E T="03">www.sec.</E> gov to receive notifications by email. A summary of the proposal of not more than 100 words is posted on the SEC's website ( <E T="03">https://www.sec.gov/rules/2024/05/cip</E> ). <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> <E T="03">Treasury:</E> The FinCEN Resource Center at (800) 767-2825 or email <E T="03">frc@fincen.gov.</E> <E T="03">Securities and Exchange Commission:</E> Daniel Levine, Attorney-Adviser; Tom Strumpf, Branch Chief; Adele Murray, Private Funds Attorney Fellow; or Melissa Roverts Harke, Assistant Director, Investment Adviser Rulemaking Office, at (202) 551-6787 or <E T="03">IArules@sec.gov,</E> Division of Investment Management, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-8549. </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">I. Background</HD> <HD SOURCE="HD2">A. Statutory Provisions</HD> Enacted in 1970, the Currency and Foreign Transactions Reporting Act, generally referred to as the Bank Secrecy Act (“BSA”), is designed to combat money laundering, the financing of terrorism, and other illicit finance activity, and to safeguard the national security of the United States. <SU>1</SU> <FTREF/> The Secretary of the Treasury (“the Secretary”) delegated the authority to implement, administer, and enforce the BSA and its implementing regulations to the Director of FinCEN. <SU>2</SU> <FTREF/> <FTNT> <SU>1</SU>   <E T="03">See</E> 31 U.S.C. 5311. Certain parts of the Currency and Foreign Transactions Reporting Act, as amended, and other statutes relating to the subject matter of that Act, have come to be referred to as the BSA. The BSA is codified at 12 U.S.C. 1829b, 12 U.S.C. 1951-1960, and 31 U.S.C. 310, 5311-5314, 5316-5336, including notes thereto, with implementing regulations at 31 CFR chapter X. </FTNT> <FTNT> <SU>2</SU>   <E T="03">See</E> Treasury Order 180-01, paragraph 3(a) (Jan. 14, 2020), available at <E T="03">https://home.treasury.gov/about/general-information/orders-and-directives/treasury-order-180-01</E> . </FTNT> Section 326 of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (“USA PATRIOT Act”) of 2001 added a subsection to the BSA, subsection ( <E T="03">l</E> ) to 31 U.S.C. 5318, in order to facilitate the prevention, detection, and prosecution of international money laundering and the financing of terrorism. Subsection 31 U.S.C. 5318( <E T="03">l</E> ) requires the Secretary to “prescribe regulations setting forth the minimum standards for financial institutions and their customers regarding the identity of the customer that shall apply in connection with the opening of an account at a financial institution.” The regulations implementing section 326 must, at a minimum, “require financial institutions to implement, and customers (after being given adequate notice) to comply with, reasonable procedures for—(A) verifying the identity of any person seeking to open an account to the extent reasonable and practicable; (B) maintaining records of the information used to verify the person's identity, including name, address, and other identifying information; and (C) consulting lists of known or suspected terrorists or terrorist organizations provided to the financial institution by any government agency to determine whether a person seeking to open an account appears on any such list.”  <SU>3</SU> <FTREF/> These programs are referred to as Customer Identification Programs (“CIPs”) and are long-standing, foundational components of a financial institution's anti-money laundering program. <FTNT> <SU>3</SU>  31 U.S.C. 5318(l)(2). </FTNT> As enacted, section 326 applies to all “financial institutions.” This term is defined broadly in the BSA to encompass a variety of entities, including commercial banks; agencies, and branches of foreign banks in the United States; thrift institutions, credit unions, and private bankers; trust companies; securities brokers and dealers registered with the Commission; investment companies; futures commission merchants; insurance companies; travel agencies; pawnbrokers; dealers in precious metals, stones, and jewels; check-cashers; certain casinos; and telegraph companies, among others. <SU>4</SU> <FTREF/> The BSA also grants authority to the Secretary to define, by regulation, additional types of businesses as financial institutions where the Secretary determines that such businesses engage in any activity “similar to, related to, or a substitute for” those in which any of the businesses listed in the statutory definition are authorized to engage. <SU>5</SU> <FTREF/> As part of the implementation, administration, and enforcement of the BSA, this authority has been delegated to the Director of FinCEN. <SU>6</SU> <FTREF/> <FTNT> <SU>4</SU>   <E T="03">See</E> 31 U.S.C. 5312(a)(2), (c)(1); <E T="03">see also</E> 31 CFR 1010.100(t) (defining “financial institution” for the purposes of the regulations implementing the BSA). </FTNT> <FTNT> <SU>5</SU>   <E T="03">See</E> 31 U.S.C. 5312(a)(2)(Y). </FTNT> <FTNT> <SU>6</SU>   <E T="03">See</E> Treasury Order 180-01, para. 3(a), <E T="03">supra</E> n.2. </FTNT> On February 15, 2024, the Secretary, through FinCEN, proposed to designate certain investment advisers as “financial institutions” under the BSA and subject them to anti-money laundering/countering the financing of terrorism (“AML/CFT”) program requirements and Suspicious Activity Report (“SAR”) filing obligations, as well as other BSA requirements (“AML/CFT Program and SAR Proposed Rule”). <SU>7</SU> <FTREF/> Although the Investment Advisers Act of 1940 (“Advisers Act”) and the rules thereunder apply to a wide range of investment advisers, <SU>8</SU> <FTREF/> the AML/CFT Program and SAR Proposed Rule—and the rule proposed in this joint NPRM as well—would only apply to a narrower subset of persons meeting the Advisers Act definition of “investment adviser”:  <SU>9</SU> <FTREF/> ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 197k characters. 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