Department of the Treasury Proposes New Regulations for Investment Advisors

The Financial Crimes Enforcement Network (FinCEN) of the Department of the Treasury has put forward a proposal for new regulations targeting investment advisors. These regulations aim to close existing loopholes in the current regulatory framework and improve the detection and prevention of money laundering and other illicit activities.

Director Andrea Gacki of FinCEN emphasized the crucial role investment advisors play in the American economy as gatekeepers who manage trillions of dollars in investments. Gacki stated, "The current system of AML/CFT requirements contains regulatory gaps that criminals and foreign adversaries exploit to launder money, obscure illegal wealth, and compromise American innovation. This new rule seeks to level the playing field, safeguard U.S. economic and national security, and protect American businesses."

FinCEN's Efforts to Modernize U.S. Regulation for Investment Advisors

In an effort to modernize the regulation of the investment advisor sector, the Financial Crimes Enforcement Network (FinCEN) is considering an additional proposal in collaboration with the Securities and Exchange Commission (SEC). This move comes in response to the rapid growth experienced by investment advisors over the past decade.

According to a senior official from the Treasury, who requested anonymity, there have been instances where Russian oligarchs have evaded sanctions by channeling funds through investment advisors. While banks would typically detect such activity, it becomes more challenging when the customer is an investment advisor rather than an individual subject to sanctions.

One notable example occurred in September, when the SEC filed civil charges against money manager Concord Management. The regulator alleged that Concord operated as an unregistered investment advisor for a wealthy Russian client with ties to the Russian government. Despite being subject to European Union sanctions in March 2022, this wealthy Russian individual had billions of dollars invested by Concord on their behalf. The case is currently pending in a federal court in New York, and Concord's lawyer has not yet responded to requests for comment.

FinCEN's collaboration with the SEC reflects the need to address these challenges and strengthen regulations to curb potential illicit activities facilitated through investment advisors.