SEC Staff Extends Relief Allowing Broker-Dealers to Rely on Investment Advisers to Perform Customer Identification and Verification

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On January 10, the SEC’s Division of Trading and Markets issued a letter to the Securities Industry and Financial Markets Association (SIFMA) that extends no-action relief allowing broker-dealers to fully rely on SEC registered investment advisers to perform some or all of their Customer Identification Program (CIP) obligations. The SEC extended the no-action relief for two years, or until such time as investment advisers become subject to an anti-money laundering rule.

The final rule under Section 326 of the USA PATRIOT Act that obligates broker-dealers to adopt a written CIP (CIP Rule) requires broker-dealers to establish and implement policies and procedures to, among other things, verify the identity of their customers. The CIP Rule also allows broker-dealers to fully rely on another financial institution to perform elements of their CIP for shared customers as long as: (i) reliance is reasonable under the circumstances; (ii) the other financial institution is subject to the Anti-Money Laundering (AML) Program requirements of Section 352 of the USA PATRIOT Act, and is regulated by a Federal Functional Regulator; and (iii) a written contract requires the other financial institution to annually certify to the broker-dealer that it has implemented the delegated elements of the broker-dealer’s CIP.

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