In recent years, anti-money laundering (aml) compliance has become an increasingly important issue for investment advisers. As financial intermediaries, investment advisers may be exploited by criminals and terrorists to launder money and finance illicit activities. To strengthen aml prevention and control, regulators in major jurisdictions have introduced more stringent aml obligations on investment advisers. Understanding the key aml regulations is crucial for investment advisers to ensure regulatory compliance.
Investment Advisers Must Establish AML Programs
The US Investment Advisers Act requires SEC-registered investment advisers to establish aml programs reasonably designed to prevent their firms from being used to facilitate money laundering and terrorist financing. The aml program should include internal policies, procedures and controls based on advisers’ risk assessment. Common components are customer identification and verification, monitoring and reporting suspicious transactions, aml training, and an independent audit function to test the program.
Ongoing Customer Due Diligence Is Required
Under the aml rules, investment advisers must identify and verify customer identities when establishing business relationships. They should also conduct ongoing due diligence and scrutinize customer transactions for suspicious activities. Advisers need to understand the nature and purpose of customer relationships and update customer information. Enhanced due diligence is required for high-risk customers such as foreign PEPs.
Suspicious Transactions Must Be Reported
Investment advisers have an obligation to monitor for and report suspicious transactions. Effective transaction monitoring systems should be implemented to identify red flags like structuring to avoid reporting thresholds, activities inconsistent with customers’ profile, or transactions with countries under sanctions. Once suspicious activities are detected, investment advisers must file SARs in a timely manner.
aml Compliance Programs Are Subject To Examination
Regulators conduct examinations on investment advisers’ aml programs to assess their adequacy and effectiveness. Deficiencies identified during examinations may result in remediation requirements or enforcement actions. Investment advisers should maintain detailed aml procedures and ensure staff competency through regular trainings. Robust audit functions are also critical to uncover aml program weaknesses and support remediation.
In summary, key aml regulations require investment advisers to implement risk-based aml programs, conduct customer due diligence, monitor transactions, file SARs and ensure program adequacy through audits. Understanding aml obligations is imperative for investment advisers to maintain regulatory compliance.