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The New Year Rings in New Requirements for NFA Member Asset Managers

In the final weeks of 2018, the National Futures Association (“NFA”) issued new requirements applicable to asset managers who are members of the NFA that will take effect in 2019. First, the NFA amended its Interpretive Notice 9070, “NFA Compliance Rules 2-9, 2-36 and 2-49: Information Systems Security Programs” (the “Cybersecurity Notice”). The amended Cybersecurity Notice adds an NFA notification obligation, employee training requirements, and specific approval procedures to the written information systems security program (“ISSP”) required of each NFA member firm (a “firm”) under the original Cybersecurity Notice issued in 2016. In addition, Interpretive Notice “NFA Compliance Rule 2-9: CPO Internal Controls System” (the “Internal Controls Notice”) requires commodity pool operator (“CPO”) members to establish a system of internal controls and provides guidance on designing and implementing such controls. The Cybersecurity Notice will become effective on April 1, 2019 and we expect the Internal Controls Notice to be effective on April 1 or soon thereafter.

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FinCEN Rule Proposes AML Regulations for Registered Investment Advisers


Time to Read: 2 minutes Practices: Hedge Funds, Investment Management, Private Investment Funds

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On August 25, the Financial Crimes Enforcement Network (“FinCEN”) proposed an anti-money laundering rule applicable to investment advisers registered with the U.S. Securities and Exchange Commission (the “SEC”). The issuance of the proposed rule was not unexpected, as it has been in process by the U.S. Treasury Department since the original 2003 proposal was withdrawn in October of 2008.

Very generally, the rule proposes three regulatory changes that would impact registered investment advisers:

  • First, the proposed rule would require registered investment advisers to establish and maintain an anti-money laundering (“AML”) program. More specifically, registered investment advisers would be required (among other things) to (1) adopt internal policies, procedures and controls designed to address AML issues that comply with minimum standards set forth in the proposed rule, (2) conduct independent testing of its AML program, (3) designate an AML compliance officer, and (4) provide ongoing AML training for firm personnel. Furthermore, the proposed rule would require a registered investment adviser to apply its AML policies, procedures and controls to investors in investment funds managed by the adviser and make a risk-based assessment of the money laundering and terrorist financing risks provided by such investors.1 FinCEN noted that it expects many registered investment advisers could adapt existing AML policies, procedures and internal controls to comply with the requirements set forth in the proposed rule.
  • Second, the proposed rule would require registered investment advisers to report suspicious activity to FinCEN pursuant to the Bank Secrecy Act of 1970 (the “BSA”) in accordance with specified filing and notification procedures.
  • Finally, the proposed rule would expand the general definition of “financial institution” to include registered investment advisers, thus subjecting such investment advisers to the requirements of the BSA. These requirements include the filing of currency transaction reports and retention of records relating to funds transmittals. 

The SEC would be delegated authority to examine registered investment advisers to ensure compliance with the requirements contained in the proposed rule.

The proposed rule will be out for a 60-day comment period. A copy of the proposed rule is available here and a copy of the press release from FinCEN is available here.


1 FinCEN noted that advisory services provided to registered fund clients (including mutual funds) may present lower money laundering and terrorist financing risk than private funds and other unregistered investment vehicles, because registered funds (or the intermediaries through which fund shares are purchased and sold) are already subject to the full scope of the rules implementing the Bank Secrecy Act of 1970.

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