03/12/2010 No-action Letter for Broker-Dealers’ Having Registered Investment Advisers Perform CIP Function Adds New Requirement
Every two years, the SEC has issued a no-action letter providing that broker-dealers may rely on registered investment advisers to perform customer identification program functions. As expected, a no-action letter was issued on January 11 to the Securities Industry and Financial Markets Association. There were some differences from the letters issued in 2004, 2006, and 2008, however. Always before, the letter has imposed the three requirements of 31 CFR 103.122(b)(6)(i)-(iii), which allow a broker-dealer to rely on another financial institution to perform its CIP functions provided:
1. Such reliance is reasonable under the circumstances.
2. The investment adviser is subject to the requirements of 31 U.S.C. 5318(h) and regulated by a federal functional regulator.
3. The investment adviser enters into a contract requiring it to certify annually to the broker-dealer that it has implemented an anti-money laundering program, and that it will perform (or its agent will perform) specified requirements of the broker-dealer’s customer identification program.
In the 2010 letter, however, three things have changed. First of all, the letter is only good for one year, not two. The second requirement in the list above has been changed to read that the investment adviser must be registered with the SEC. Also a fourth requirement has been added:
4. The adviser (or its agent) performs the specified requirements of the broker-dealer’s CIP.
Since this requirement is not in 31 CFR 103.122(b)(6), it appears possible that FinCEN is thinking of alterations to that regulation. This may be implied by a footnote in the ruling stating that if FinCEN proposes another AML rule for investment advisers (the prior proposal was withdrawn in 2008), the position of this letter may be withdrawn. This letter will be discussed in the next issue of the Monitor.
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