Advisers to face stricter anti-money-laundering rules

Government focus on rooting out financial crimes includes proposals to get advisers more involved

May 24, 2016 @ 12:15 pm

By Liz Skinner

Financial advisers should start thinking about how they'll meet stricter anti-money-laundering rules that are heading their way, just as regulators step up their fight against financial crimes overall.

A proposal from a unit of the U.S. Treasury Department would require advisers registered with the Securities and Exchange Commission to establish AML programs and report suspicious activity to the government. The regulations, proposed by the Financial Crimes Enforcement Network in August, would have the SEC examine advisers for compliance with the rule.

“This is going to be a burden on advisers and firms and I'm not sure they are paying attention,” said Tom Nally, president of TD Ameritrade Institutional, in an interview last week.

Advisers have been very focused on evaluating the compliance burden that will be imposed by the new Labor Department fiduciary rule, which requires all retirement advice be provided in clients' best interests. It's expected to force significant business changes for some firms and begins to go into effect in April 2017.

But “the AML rules are the bus right behind the oncoming train,” Mr. Nally said.

The filing of suspicious activity reports and the ongoing monitoring that advisers will have to do to follow this AML rule will require new procedures and processes, he said.

The government is focusing on advisers because it believes they can play an important role in detecting criminals trying to launder money through the U.S. financial system. It figures advisers know their clients better than the broker-dealer that processes the transactions.

Broker-dealers and banks had to set up policies more than a decade ago to detect possible money laundering. Just last week the industry's self regulatory organization brought its highest penalty for AML rule violations.

The Financial Industry Regulatory Authority Inc. hit two units of Raymond James Financial Inc. with a record $17 million in fines for widespread compliance failures in the brokerage firm's AML programs.

Raymond James & Associates and Raymond James Financial Services failed to set up systems to properly prevent, detect and investigate suspicious activity for several years as the units saw “significant growth” from 2006 to 2014, according to Finra. The independent broker-dealer's former AML compliance officer also was fined $25,000 and suspended for three months.

The government recently issued additional AML requirements for all financial institutions.

Earlier this month, FinCen published customer due diligence requirements that mandate identification of any beneficial owners of customer accounts. They take effect in May 2018.

Lourdes Gonzales, assistant chief counsel at the SEC's division of trading and markets, said these rules will require financial institutions to understand their customer relationships more closely and to develop customer risk profiles. She was speaking at a Finra conference in Washington on Monday and did not mention whether it will apply to financial advisers.

Legally, though, it would make sense, since the August proposal would include advisers as a “financial institution” under the Bank Secrecy Act.

John Couriel, a partner with law firm Kobre & Kim, said it's reasonable to expect advisers will have to comply with this new rule.

“Ongoing, new AML rules are going to require more rigorous programs” from advisers, broker-dealers and banks, especially when it comes to data gathering on the front end, he said.


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