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[\/et_pb_text][et_pb_button button_url=”https:\/\/ics-compliance.com\/wp-content\/uploads\/08\/ia-6383-fact-sheet.pdf” url_new_window=”on” button_text=”Download The Fact-Sheet” button_alignment=”left” disabled_on=”on|on|on” admin_label=”Button Fact Sheet Download” _builder_version=”4.22.2″ custom_button=”on” button_text_size=”13px” button_text_color=”#ffffff” button_bg_color=”#006daf” button_border_width=”0px” button_border_radius=”0px” button_icon=”%%20%%” button_icon_color=”#ffffff” vertical_offset_tablet=”0″ horizontal_offset_tablet=”0″ z_index_tablet=”0″ button_text_shadow_horizontal_length_tablet=”0px” button_text_shadow_vertical_length_tablet=”0px” button_text_shadow_blur_strength_tablet=”1px” box_shadow_horizontal_tablet=”0px” box_shadow_vertical_tablet=”0px” box_shadow_blur_tablet=”40px” box_shadow_spread_tablet=”0px” disabled=”on” global_colors_info=”{}”][\/et_pb_button][et_pb_text admin_label=” Text Post” _builder_version=”4.27.2″ text_font=”DM Serif Display||||||||” text_text_color=”#9c9c9c” header_2_font=”DM Serif Display||||||||” header_2_text_color=”#293d93″ header_2_font_size=”50px” header_3_font=”DM Serif Display||||||||” header_3_text_color=”#02c39a” header_3_font_size=”19px” vertical_offset_tablet=”0″ horizontal_offset_tablet=”0″ z_index_tablet=”0″ text_text_shadow_horizontal_length_tablet=”0px” text_text_shadow_vertical_length_tablet=”0px” text_text_shadow_blur_strength_tablet=”1px” link_text_shadow_horizontal_length_tablet=”0px” link_text_shadow_vertical_length_tablet=”0px” link_text_shadow_blur_strength_tablet=”1px” ul_text_shadow_horizontal_length_tablet=”0px” ul_text_shadow_vertical_length_tablet=”0px” ul_text_shadow_blur_strength_tablet=”1px” ol_text_shadow_horizontal_length_tablet=”0px” ol_text_shadow_vertical_length_tablet=”0px” ol_text_shadow_blur_strength_tablet=”1px” quote_text_shadow_horizontal_length_tablet=”0px” quote_text_shadow_vertical_length_tablet=”0px” quote_text_shadow_blur_strength_tablet=”1px” header_text_shadow_horizontal_length_tablet=”0px” header_text_shadow_vertical_length_tablet=”0px” header_text_shadow_blur_strength_tablet=”1px” header_2_text_shadow_horizontal_length_tablet=”0px” header_2_text_shadow_vertical_length_tablet=”0px” header_2_text_shadow_blur_strength_tablet=”1px” header_3_text_shadow_horizontal_length_tablet=”0px” header_3_text_shadow_vertical_length_tablet=”0px” header_3_text_shadow_blur_strength_tablet=”1px” header_4_text_shadow_horizontal_length_tablet=”0px” header_4_text_shadow_vertical_length_tablet=”0px” header_4_text_shadow_blur_strength_tablet=”1px” header_5_text_shadow_horizontal_length_tablet=”0px” header_5_text_shadow_vertical_length_tablet=”0px” header_5_text_shadow_blur_strength_tablet=”1px” header_6_text_shadow_horizontal_length_tablet=”0px” header_6_text_shadow_vertical_length_tablet=”0px” header_6_text_shadow_blur_strength_tablet=”1px” box_shadow_horizontal_tablet=”0px” box_shadow_vertical_tablet=”0px” box_shadow_blur_tablet=”40px” box_shadow_spread_tablet=”0px” global_colors_info=”{}”]<\/p>\n
Reg BI compliance and the use of crypto assets are other areas of focus for the upcoming year.<\/p>\n
In addition to a\u00a0previously reported SEC sweep<\/a>\u00a0looking into how firms use AI-based tools, it\u2019s the latest indication of an ever-increasing focus by the commission on registrants\u2019 use of AI in their daily practices. It\u2019s all the more notable, considering artificial intelligence was barely mentioned in\u00a0last year\u2019s exam priorities<\/a>\u00a0and wasn\u2019t cited\u00a0in the 2023 release<\/a>.<\/p>\n According to the SEC, the exam division will review registrants \u201cregarding their AI capabilities or AI use for accuracy\u201d and determine whether they\u2019ve put adequate policies and procedures in place to supervise the use of AI, including for tasks related to fraud prevention and detection, back-office operations, anti-money laundering processes and trading functions.<\/p>\n \u201cIn addition, the division will examine how registrants protect against the loss or misuse of client records and information that may occur from the use of third-party AI models and tools,\u201d the priorities document read.<\/p>\n According to the compliance services provider ACA Group<\/a>, the SEC\u2019s AI sweep included requests for information on how firms managed AI-related conflicts of interest, marketing materials mentioning AI, continuity plans around AI system failures and other related documents.\u00a0<\/p>\n This focus comes\u00a0despite a recent ACA Group survey<\/a> indicating that 64% of advisory firms had no plans to build or use client-facing AI tools or predictive analytics models in the future (compared to 30% of firms who said they\u2019re not currently doing so but are \u201cexploring or actively building\u201d such tools).\u00a0<\/p>\n Though AI was mentioned in the 2024 priorities, it\u2019s far more prominent this year, according to Lori Weston, director of product and strategy at STP Investment Services. Firms should be particularly vigilant, considering regulators are bringing enforcement actions against\u00a0registrants for AI-related lapses<\/a>.\u00a0<\/p>\n Weston also said the SEC\u2019s \u201cincreased focus\u201d on outsourcing, particularly for advisors related to investment selection and management.<\/p>\n \u201cAdvisers should review their overall policies regarding the supervision and oversight of all third-party providers, with a particular focus on the third-party provider\u2019s use of AI,\u201d she said. \u201cIn today\u2019s interconnected environment, AI risks can infiltrate a firm\u2019s operations via third-party vendors.\u201d<\/p>\n The commission has been weighing rules related to broker\/dealer and RIA conflicts using predictive data analytics, AI and machine learning. However, according to regulatory information at the White House Office of Management and Budget, the commission is considering\u00a0re-proposing those rules<\/a>, pushing back their final stages even further.<\/p>\n As in previous years, examiners continue to watch investment advisors\u2019 adherence to fiduciary duties and b\/d\u2019s compliance with Regulation Best Interest. They\u2019ll focus on advisors\u2019 recommendations related to high-cost products, unconventional instruments, illiquid and difficult-to-value assets and those assets sensitive to higher interest rates and changing marketing conditions, including commercial real estate.\u00a0<\/p>\n For dual registrants, examiners are investigating account allocation and selection practices (including differentiating between brokerage and advisory, including when rolling over to an IRA), according to the exam priorities.\u00a0<\/p>\n Like last year\u2019s priorities, examiners are\u00a0investigating registrants\u2019 use of crypto assets. Climate and ESG-related concerns are not mentioned in the priorities for the second year\u00a0after being focal points<\/a>\u00a0for several prior years.<\/p>\n Credits: https:\/\/www.wealthmanagement.com\/regulation-compliance\/ai-usage-top-priority-sec-examiners-2025<\/a><\/p>\n [\/et_pb_text][et_pb_button button_url=”https:\/\/ics-compliance.com\/wp-content\/uploads\/08\/ia-6383-fact-sheet.pdf” url_new_window=”on” button_text=”Download The Fact-Sheet” button_alignment=”left” disabled_on=”on|on|on” admin_label=”Button Fact Sheet Download” _builder_version=”4.22.2″ custom_button=”on” button_text_size=”13px” button_text_color=”#ffffff” button_bg_color=”#006daf” button_border_width=”0px” button_border_radius=”0px” button_icon=”%%20%%” button_icon_color=”#ffffff” button_rel=”off||||” vertical_offset_tablet=”0″ horizontal_offset_tablet=”0″ z_index_tablet=”0″ button_text_shadow_horizontal_length_tablet=”0px” button_text_shadow_vertical_length_tablet=”0px” 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header_2_text_shadow_blur_strength=\"header_2_text_shadow_style,%91object Object%93\" header_2_text_shadow_blur_strength_tablet=\"1px\" header_3_font=\"DM Serif Display||||||||\" header_3_text_color=\"#02c39a\" header_3_font_size=\"19px\" header_3_text_shadow_horizontal_length=\"header_3_text_shadow_style,%91object Object%93\" header_3_text_shadow_horizontal_length_tablet=\"0px\" header_3_text_shadow_vertical_length=\"header_3_text_shadow_style,%91object Object%93\" header_3_text_shadow_vertical_length_tablet=\"0px\" header_3_text_shadow_blur_strength=\"header_3_text_shadow_style,%91object Object%93\" header_3_text_shadow_blur_strength_tablet=\"1px\" header_4_text_shadow_horizontal_length=\"header_4_text_shadow_style,%91object Object%93\" header_4_text_shadow_horizontal_length_tablet=\"0px\" header_4_text_shadow_vertical_length=\"header_4_text_shadow_style,%91object Object%93\" header_4_text_shadow_vertical_length_tablet=\"0px\" header_4_text_shadow_blur_strength=\"header_4_text_shadow_style,%91object Object%93\" header_4_text_shadow_blur_strength_tablet=\"1px\" header_5_text_shadow_horizontal_length=\"header_5_text_shadow_style,%91object Object%93\" header_5_text_shadow_horizontal_length_tablet=\"0px\" header_5_text_shadow_vertical_length=\"header_5_text_shadow_style,%91object Object%93\" header_5_text_shadow_vertical_length_tablet=\"0px\" header_5_text_shadow_blur_strength=\"header_5_text_shadow_style,%91object Object%93\" header_5_text_shadow_blur_strength_tablet=\"1px\" header_6_text_shadow_horizontal_length=\"header_6_text_shadow_style,%91object Object%93\" header_6_text_shadow_horizontal_length_tablet=\"0px\" header_6_text_shadow_vertical_length=\"header_6_text_shadow_style,%91object Object%93\" header_6_text_shadow_vertical_length_tablet=\"0px\" header_6_text_shadow_blur_strength=\"header_6_text_shadow_style,%91object Object%93\" header_6_text_shadow_blur_strength_tablet=\"1px\" box_shadow_horizontal_tablet=\"0px\" box_shadow_vertical_tablet=\"0px\" box_shadow_blur_tablet=\"40px\" box_shadow_spread_tablet=\"0px\" vertical_offset_tablet=\"0\" horizontal_offset_tablet=\"0\" z_index_tablet=\"0\"]<\/p> On August 28, 2024, the US Department of the Treasury\u2019s Financial Crimes Enforcement Network (FinCEN)\u00a0issued a final rule<\/a>\u00a0that expressly includes certain investment advisers in the definition of a \u201cfinancial institution\u201d under the Bank Secrecy Act (BSA) and its implementing regulations, which collectively establish the US anti-money laundering (AML) and counter-terrorism financing (CFT) regime. The final rule incorporates a substantial portion of the requirements included\u00a0in the\u00a0initial proposed rulemaking issued on February 13, 2024<\/a>, although certain key changes limit the scope of the final rule. The final rule does not encompass any rules related to the\u00a0customer identification program (CIP) proposed rulemaking<\/a>\u00a0issued on May 13, 2024.<\/p> According to the fact sheet released alongside the final rule, FinCEN believes the requirements will \u201caddress the current uneven application of AML\/CFT requirements across the investment adviser sector, which creates illicit finance risk and allows both legitimate and illicit investors to \u2018shop around\u2019 for an adviser who does not need to apply AML\/CFT controls, such as inquiring into the investor\u2019s source of wealth.\u201d<\/p> Investment advisers covered by the final rule are required to comply by January 1, 2026.<\/p> Who is covered?<\/strong><\/p> Consistent with the proposed rule, the final rule revises the definition of a \u201cfinancial institution\u201d under the BSA\u2019s implementing regulations to include:<\/p> The definition of an investment adviser under the final rule will\u00a0not<\/strong>\u00a0apply to the following:<\/p> FinCEN also limits the scope of the final rule for investment advisers whose principal office and place of business are outside of the US. In those cases, the requirements of the final rule only apply to activities that take place within the US (including through the involvement of the investment adviser\u2019s US personnel) or provide services to a US person or a foreign-located private fund with an investor that is a US person.<\/p> Key highlights of the final rule<\/strong><\/p> General AML\/CFT requirements<\/strong><\/p> Generally, the final rule requires covered investment advisers to implement an AML\/CFT program to combat money laundering and the financing of terrorism through the institution. In the commentary to the final rule, FinCEN reiterates that it is not requiring AML\/CFT programs to take a one-size-fits-all approach, but rather, such programs must be risk-based and reasonably designed to assure and monitor compliance with BSA\/AML requirements. Further, the program must be approved in writing by the investment adviser\u2019s board of directors or trustees, or other persons that perform similar functions. In addition, under the final rule, investment advisers must:<\/p> Differences from the proposed rule<\/strong><\/p> While the final rule implements much of the proposed rule, it contains several substantive changes (as well as a few incremental ones). In addition to limiting the definition of an investment adviser, key substantive differences between the proposed and final rules include:<\/p> Applicability to mutual funds and other regulated entities<\/strong>\u00a0\u2013 As in the proposed rule, investment advisers are not required to apply AML\/CFT program requirements to the mutual funds they advise. However, in the final rule, investment advisers also are not required to verify that the mutual funds have implemented an AML\/CFT program. Additionally, the final rule expands this exclusion to also apply to certain bank- and trust company-sponsored collective investment funds and any other investment adviser subject to the final rule that is advised by the investment adviser.<\/p> Implementation and oversight of AML\/CFT programs by US persons<\/strong>\u00a0\u2013 Unlike in the proposed rule, the final rule does not include language explicitly requiring that AML\/CFT programs established by investment advisers be the sole responsibility of personnel in the US that are accessible to \u2013 and subject to \u2013 the oversight and supervision of FinCEN. This \u201cduty provision\u201d is a new statutory requirement under the BSA. FinCEN proposed to address it in its recent\u00a0proposed rulemaking on modernizing AML programs<\/a>\u00a0for certain existing financial institution types, but did not address it in the final rule for investment advisers. Despite FinCEN not addressing the duty provision, the statutory obligation will still likely apply to investment advisers as financial institutions under the BSA, subject to any further interpretive guidance from FinCEN on this issue.<\/p> Examination authority delegated to the SEC<\/strong><\/p> Under the final rule, FinCEN delegates its examination authority for the rule to the SEC, given the SEC\u2019s AML examination experience and expertise with investment advisers. FinCEN noted in the supplemental commentary to the final rule that it will coordinate with the SEC on whether to publish an investment adviser examination manual or other relevant resources specific to investment advisers in light of the new rule. FinCEN further noted that, for investment advisers with more than one functional federal regulator, supervisory coordination among regulators will remain important to maintain efficiencies and avoid duplication.<\/p> Next steps<\/strong><\/p> With the extended effective date of the final rule, FinCEN emphasized that it expects covered investment advisers to implement and ensure that their AML\/CFT programs are operating by January 1, 2026. Investment advisers should start determining whether the final rule applies and identify the actions needed to ensure they timely comply, which may range from creating an AML\/CFT program to updating current policies and procedures to align with BSA\/AML requirements.<\/p>FinCEN Issues Final Rule Requiring Investment Advisers to Establish Anti-Money Laundering Programs<\/h1>