Better Markets’ filed a Comment Letter to the Securities and Exchange Commission (SEC) regarding its proposed rule to require that investment advisers implement reasonable procedures to verify the identity of their customers.
Why it Matters. Investment advisers play a crucial role in our financial system. And money laundering, terrorist financing, and sanctions evasion pose a grave threat to that financial system and our national security. But unlike banks and broker-dealers, many investment advisers are not subject to any obligations to have a program dedicated to anti-money laundering or countering the financing of terrorism (AML/CFT). This creates a huge gap in the regulations that are designed to prevent criminals and terrorists from accessing the U.S. financial system. The SEC’s rule fills that loophole in the AML/CFT regulatory framework by subjecting investment advisers to similar regulatory obligations as other market participants.
What we said. The SEC’s rule requires that investment advisers establish, document, and maintain a written customer identification program (CIP) as part of an AML/CFT program. The CIP must include procedures for verifying the identity of customers that allow the investment adviser to form a reasonable belief that it knows the customer’s true identity. This is essential to prevent criminal enterprises and sanctions evaders from using investment advisers as a gateway to the U.S. financial system and as a means of circumventing the safeguards in place at banks and broker-dealers and avoiding detection of illicit activities.
Bottom Line. AML/CFT programs and CIPs are essential to protect the U.S. economy and security and the global financial system. But those policies and procedures will only be effective if they are comprehensive. The failure to require that investment advisers have AML/CFT programs that include CIPs is a fundamental weakness in those policies and procedures. Criminal enterprises and sanctions evaders have taken, and will continue to take, advantage of that vulnerability. As a result, the SEC’s proposed rule is an essential measure to ensure that our AML/CFT policies are able to prevent money laundering and other illicit financial activity.
You can read the full comment letter here.
