The Biden administration wants to require investment advisers to detect and report suspected money laundering to the government.
The new requirements, proposed by the US Treasury Department's Financial Crimes Enforcement Network (FinCEN) on Tuesday, would apply to investment advertisers who are registered with the US Securities and Exchange Commission (SEC).
Investment advertisers, who are exempted from registration but still required to report to the SEC, are also covered by the new rules if adopted.
Biden Administration to Extend Anti-Money Laundering Regulation to Investment Advertisers
According to Wall Street Journal, the newly proposed anti-money laundering regulation aims to limit possible illicit finance flowing through the private funds sector.
However, FinCEN estimates that at least 17,000 state-registered investment advisers will be excluded from the proposed legislation, CNBC reported.
Under the proposed rules, FinCEN will mandate investment advertisers to file suspicious activity reports and disclose additional details regarding their clients under certain situations.
However, FinCEN clarified that the new proposed legislation would not include requiring investment advertisers to adopt formal customer identification programs, which US banks currently have.
Affected investment advertisers also don't need to report the beneficial ownership information to FinCEN for their clients that are legal entities, like LLCs. However, FinCEN noted that these exemptions will not last very long since it aims to pursue both regulations in the near future.
Problem With Investment Advertisers
According to Wall Street Journal, investment advisers are usually required to register with the SEC if they manage at least $110 million in client assets. Exempt reporting advisers generally advise only private funds and handle less than $150 million or advise only venture-capital funds.
For the past few years, investment advertisers manage tens of trillions of dollars since they have been exempted from the anti-money laundering regulations of the Treasury Department.
"Right now, there is a patchwork regulatory coverage in the investment advisor sector," said FinCEN Director Andrea Gacki.
"These gaps in regulations allow illicit actors to shop around for an advisor who does not need to inquire about their source of wealth," she added.
The Treasury Department corruption watchdog explained that because of these exemptions, tax evaders, money launderers, and other criminals are able to exploit investment advertisers in the US.
The new proposed regulations will address this issue. However, it may take time before the government can feel its positive effects.
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