A group of senators has urged the U.S. Treasury Department (Treasury) to require investment advisers to report suspicious activity to the government, arguing that the move would help prevent money laundering and sanctions evasion.
In a letter to Treasury Secretary Janet Yellen, the senators said that the Financial Crimes Enforcement Network’s (FinCEN) proposed rule to include investment advisers in the definition of “financial institution” in the Bank Secrecy Act (BSA) would help strengthen oversight of the industry, which has been largely exempt from anti-money laundering (AML) regulations until now.
While most investment advisers serve customers on Main Street and comply with the law, segments of the industry, in particular advisers to private funds, have been attractive to money launderers and sanctioned persons, the letter said, adding that the lack of standardized requirements has allowed bad actors to seek out an adviser that will turn a blind eye to the ultimate source of the money they are managing.
The senators also noted that the private equity sector has grown significantly in recent years, with assets under management with registered advisers rising from about $60 trillion in 2019 to $130 trillion in 2022, and a significant portion of that growth being driven by private funds.
The growth in the private equity sector has been driven by a number of factors, including rising investor demand for alternative investment products, the increasing use of private equity in corporate finance, and the development of new asset management models. However, the expansion of the private equity sector has also created new opportunities for money launderers and sanctioned persons to generate and transfer funds out of the U.S. financial system, the letter said.
The senators called on the Treasury to finalize the proposal as quickly as practicable and urged that the regulation would be accompanied by guidance for advisers on how to comply with the new requirements.
Generative artificial intelligence (AI) assisted a What’sUpNewp journalist with the reporting included in this story.