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According to an undersecretary of Treasury Department.

“Some financial intermediaries, such as investment advisers, are not subject to comprehensive AML/CFT regulations”, Brian Nelsonundersecretary for terrorism and financial intelligence at the Treasury Department, said Wednesday, referring to anti-money laundering and anti-terrorist financing rules.

“While investment advisers are subject to multiple federal and state regulatory requirements, these requirements primarily focus on consumer protection,” Nelson said during the presentation. Securities and Capital Markets Industry AssociationConference on the fight against money laundering and financial crimes.

The Bank Secrecy Act is the first and strictest AML/CFT law in the United States, Member’s check, which was founded in 2008 to help organizations meet their AML/CFT obligations. The BSA empowers the Secretary of the Treasury to issue regulations requiring banks and other financial firms to take precautions against financial fraud, including the implementation of AML programs that provide due diligence, monitoring, reporting and maintenance. adequate records for consumers, Member Check note.


Advisors are at risk in part because of the “lack of consistent industry standards,” which “can prompt regulatory arbitrage,” Nelson said, citing the Department of Money Laundering’s National Money Laundering Risk Assessment. Trésor during his speech.

“At the moment, investment advisers can voluntarily perform certain AML/CFT functions or comply with an affiliated entity’s AML/CFT obligations, but inconsistencies in AML/CFT obligations between market segments create a vulnerability that illicit actors can exploit. In particular, the lack of consistent requirements to identify and report suspicious transactions can harm our national security,” he added.

The segmented nature of the consulting industry presents another risk because it can “limit transparency,” according to Nelson. For example, a broker executing a trade under the direction of an adviser may not know the identity of the adviser’s client, he told the conference.

“Given these vulnerabilities, money launderers may view certain investment advisers as a low-risk way to enter the U.S. financial system,” he said.

In October last year, the Financial Sector Regulatory Authority issued Regulatory Notice 21-36 to inform brokers of the AML/CFT priorities and statements issued by the Financial Crimes Networkand to encourage member companies to consider how to incorporate them into their risk-based AML compliance programs.

FinCen’s AML/CFT Priorities and Statements, released in June 2021, identify and describe the most significant threats: corruption; cybercriminality ; the financing of national and international terrorism; fraud; transnational criminal organizations; drug trafficking organizations; trafficking in human beings and financing the trafficking and proliferation of human beings.

Increase in RIA staff

Meanwhile, the increase in the number of registered investment advisory firms and corresponding decrease in the number of registered brokers is problematic as brokers “face tougher AML/CFT requirements”, according to Nelson.

According Cerulli Associates.

Between 2020 and 2025, Cerulli expects the headcount of independent advisers to grow by 2.2% in the hybrid registered investment adviser channel, 2.1% among independent RIA firms, and 1% among independent brokers.

By contrast, Cerulli expects advisor headcount in employee channels to decline over the same five-year period by 2.4% at hookups and 5.6% at brokers. in retail banking.

“There may be many benign reasons for this change, but it could also reflect an attempt by entities to enter an industry with fewer AML compliance requirements. We continue to monitor and review this issue,” Nelson told the conference.

Nelson said his team was trying to “better understand the extent and nature of any AML/CFT risk” in the industry and “determine whether action is appropriate”.

“First, we work with law enforcement, the SEC [Securities and Exchange Commission] and Finra to better understand their perspective on the risk landscape. Second, we work with the industry to understand your assessment of risk vulnerabilities. And third, we are thinking about ways to collect information that will improve our visibility in the sector,” he told the conference.

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