SEC-registered investment advisors would have to comply

Banks, mutual fund, insurance and security dealers share an affirmative obligation to comply with anti-laundering regulations by identifying their customers and reporting significant (over $10,000) transactions. In a proposed rule change announced yesterday, Treasury would extend monitoring and reporting requirements to all investment advisors, including hedge fund and private equity advisors, as well.   For an estimated 10,900-registered advisory firms, the proposed regulation will mean, at a minimum, two things… read on.

Monitoring and reporting – and the infrastructure of technology and investigation they require – will require new dexterity in handling information.  From structured transactional data, to know-your-customer (KYC) record-keeping, to unstructured communications with clients, registered advisors will become another front in the battle to fight crime and de-fund terrorism.

SARS … not the disease

As suspicious activity reports (SARs, in regulatory-speak) become a part of the investment advisory landscape, registered advisory firms will confront the same challenges faced by banks, insurance, and mutual funds.  And the challenges can be both daunting and costly.

In its 2014 Global Anti-Money Laundering Survey, consultancy KPMG summarized eight key findings about the existing AML environment

  1. Senior management has renewed its focus on AML
  2. The cost of AML compliance is consistently underestimated
  3. Hiring and training suffer from inconsistency
  4. Outsourcing and off-shoring are common, if troubling, trends
  5. Monitoring transactions is costing more and delivering less
  6. Regulators are laser-focused on KYC
  7. Exposure to Politically Exposed Persons is a major concern
  8. The pace of regulatory change creates real stress

In the report, KPMG documents how these issues have evolved over the last decade.  What can investment advisory firms learn from the experiences of banks?  Likely, plenty.

Getting Smart

Start hanging out with the AML crowd – members of ACAMS, a society of certified AML professionals.  You’ll need to become a member, for a nominal annual fee.  In addition to their informative web presence, they co-sponsor a variety of well-regarded, focused events on specific AML challenges.

You won’t have to contact another group of AML-wise players, major international consultancies – they’re certain to contact you.  Several have acquired considerable institutional knowledge and the proposed rule offers them ample opportunity to leverage their experience.

A third group is the community of regulated institutions – the ones with the scars and stories to curl your hair.  You’ll find them at conferences – alternately sharing their travails and looking for new ways to do substantially more without ‘breaking the bank’.  In the end, their exposure to risk – fines, penalties, diminished brand value, and even imprisonment – makes their experience decidedly less academic.  Real world.

Getting Started …

In my next post, I’ll share some experiences from the frontline of the AML battle and how it can be won.

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