FinCen Rule Delayed Indefinitely by Regulatory Freeze, Other Factors: Sources

A U.S. proposal that would formally require thousands of investment advisers to comply with anti-money laundering regulations may be stalled indefinitely, according to industry sources.

In August 2015, the U.S. Treasury Department’s Financial Crimes Enforcement Network, or FinCEN, pitched its latest iteration of a draft rule that would obligate advisers registered with the Securities and Exchange Commission to establish AML programs and report suspicious activity in the same manner as banks and other regulated institutions.

“Investment advisers are on the front lines of a multi-trillion dollar sector of our financial system,” then FinCEN Director Jennifer Shasky Calvery said at the time. “If a client is trying to move or stash dirty money, we need investment advisers to be vigilant in protecting the integrity of their sector.”

Finalization of the rule appeared imminent until May 2016, when Shasky Calvery, perhaps its most prominent champion, left for the private sector.

The measure’s future was further cast in doubt when Donald Trump won the U.S. presidential election in November on a platform of deregulation, then initiated a freeze on the promulgation of any new federal regulations shortly after his inauguration in January.

“I would classify this as another near miss for the investment adviser rule,” said Jonathan Lopez, former deputy chief of the U.S. Justice Department’s money laundering and bank integrity unit. “The bottom line is the rule is not going to move forward until a new [FinCEN] director is in place, or even during this administration necessarily.”

The White House has yet to appoint a new director, a role that does not require congressional approval. Deputy Director Jamal El-Hindi has led the bureau in a temporary capacity since Shasky Calvery’s departure nearly a year ago.

Trump’s pick to head the Treasury Department’s Office of Terrorism and Financial Intelligence, former federal prosecutor Sigal Mandelker, is expected to want to choose her own candidate to lead FinCEN, possibly delaying the finalization of the rule even further, according to a former regulator who asked to speak on condition of anonymity.