On May 13, 2024 the Securities Exchange Commission and U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) issued a joint notice of proposed rulemaking (the “CIP Proposal”) that would apply customer identification program (“CIP”) obligations to SEC-registered investment advisers and exempt reporting advisers (“SEC Advisers”).
The rule, if adopted, would require SEC Advisers to implement a CIP that includes procedures for (1) verifying the identity of each customer to the extent reasonable and practicable; and (2) maintaining records of the information used to verify a customer’s identity, including name, address, and other identifying information, among other requirements. The CIP Proposal is generally consistent with the CIP requirements for other financial institutions, such as brokers or dealers in securities and mutual funds.
The CIP Proposal complements a separate FinCEN proposal, which has been adopted (the “SAR Final Rule”), to designate SEC Advisers as “financial institutions” under the Bank Secrecy Act and subject them to anti-money laundering and countering the financing of terrorism program requirements, as well as obligations to file suspicious activity reports. The SAR Final Rule requires compliance with its requirements by January 1, 2026.
The CIP Proposal, if adopted, will be effective 60 days after the date on which the final rule is published in the Federal Register. A SEC Adviser would be required to develop and implement a CIP that complies with the rule’s requirements on or before six months from the effective date of the regulation, but no sooner than January 1, 2026, the compliance date of the SAR Final Rule.
Due to the adoption of the SAR Final Rule, we are keeping a close eye on the CIP Proposal and will provide further insight into this rule and its effect on SEC Advisers if it is adopted. Even with the deregulatory bent of the new administration, the CIP Proposal may still be adopted given its anti-money laundering purpose. If you have questions about the CIP Proposal, please contact a member of Harter Secrest & Emery’s Securities and Capital Markets group.