MFA submits letter to FinCEN on proposed AML rule delay

MFA submitted a letter to the Financial Crimes Enforcement Network (“FinCEN”) presenting the following comments on its proposed rulemaking to delay the effective date of the anti-money laundering/counter the financing of terrorism program and suspicious activity report filing requirements for registered investment advisers and exempt reporting advisers:

1. Support for delay of effective date
2. Clarification of the AML Program Rule 
   • Scope of advisory services:
     • Request additional guidance on what constitutes “advisory services” versus “non-advisory services” under the rule.
     • Encourage FinCEN to provide more examples of excluded activities (e.g., pre-engagement services, administrative functions, research not tied to AUM).
     • Confirm that voluntary AML procedures for non-advisory services or non-U.S. requirements should not trigger enforcement under the U.S. rule.
   • Reliance on third parties:
     • MFA seeks clarification that delegation of AML functions to fund administrators is appropriate and that advisers can satisfy due diligence requirements on third-party service providers by reviewing summaries or certifications, not full policies or audits.
     • Periodic monitoring of third parties should be risk-based and not required on a fixed schedule.
     • Delegation of AML functions should be indirect (e.g., via a private fund) and that contracts need not detail every delegated function. 
   • Risk-based AML/CFT program application:
     • MFA urges FinCEN to clarify expectations for risk-based procedures, especially for private fund investors and account relationships.
     • Advisers should be able to rely on information from investors (via fund administrators) unless reason exists to doubt its accuracy.
     • Existing industry practices should be leveraged for low-risk relationships (e.g., private fund investors with pre-existing relationships with financial institutions).
   • Special due diligence for correspondent and private banking accounts:
     • These should not apply to investment advisers.
     • Guidance is appropriate for the application of special due diligence requirements, including confirmation that such requirements do not apply to accounts held by investment advisers or financial institutions acting as nominees.
     • The definition of “beneficial owner” for private funds should be clarified, along with the scope of due diligence obligations.
   • Suspicious activity report (“SAR”) filing obligations:
     • Advisers typically do not hold investor funds directly and requests clarification on the scope of transactions and information that must be monitored for suspicious activity.
     • SAR filings by private fund managers would be exceedingly rare.
     • FinCEN is encouraged to clarify that automated transaction monitoring systems are not always required and provide a list of red flags for training purposes.
   • SAR sharing and confidentiality:
     • Request guidance permitting advisers to share SARs and related information with affiliates, private funds, and their personnel, consistent with bank and broker-dealer practices.
     • FinCEN should clarify that third parties delegated to monitor/report suspicious activity are considered agents for SAR confidentiality purposes.
   • Funds transfer and travel rules:
     • FinCEN should confirm that the funds transfer and travel rules have limited applicability to advisers, given that private fund assets are typically held at custodians, not by advisers themselves.