On December 12, the staff of the US Securities and Exchange Commission (SEC) issued the latest in a series of letters to the Securities Industry and Financial Markets Association (SIFMA). The letters conditionally extend no-action relief that allows broker-dealers to rely fully on SEC-registered investment advisers (RIAs) to perform some or all of the broker-dealers’ Customer Identification Program (CIP) obligations under federal anti-money laundering (AML) requirements. The SEC extended the no-action relief for the earlier of (i) two years (December 18, 2018) or (ii) such time that RIAs become subject to an AML program rule.
Although the extension of relief applying to broker-dealers’ CIP obligations is not new, in this newest iteration of the letter, the staff also extended no-action relief to permit broker-dealers to rely on RIAs to perform the portion of the customer due diligence rule regarding the recently adopted beneficial ownership requirements for legal entity customers (31 C.F.R. § 1010.230) (Beneficial Ownership Requirements). In submitting the request this year, SIFMA asked the SEC staff to apply the principles underlying the CIP no-action position to the Beneficial Ownership Requirements.
Although the AML programs rules were proposed for RIAs last year, in issuing the latest no-action letter and expanding the relief to include the Beneficial Ownership Requirements (for which compliance is not required until May 2018), the SEC staff appears to be hedging its bets in the event that the Financial Crimes Enforcement Network (FinCEN) once again delays implementing AML requirements for RIAs. Indeed, now that the Financial Action Task Force (the intergovernmental body that sets AML standards) has completed its mutual evaluation of the United States (again finding deficiencies in AML requirements as applied to RIAs as well as lack of timely access to adequate, accurate, and current beneficial ownership information, among other things), FinCEN may decide to take an approach that is more, in a word, deliberative.
Of course, only time will tell if—two years from now—we are again writing about the SEC’s latest letter to SIFMA.