IAA Submits Comments on CIP Proposal for Investment Advisers

July 22, 2024

The IAA has submitted comments on a May 21, 2024, joint proposal from the SEC and Treasury Department that would require investment advisers to implement a customer identification program (CIP). The proposal covers SEC-registered investment advisers and exempt reporting advisers (SEC Advisers). This proposal is related to and complements a separate Treasury proposal, where the IAA submitted comments, that would subject SEC Advisers to comprehensive anti-money laundering (AML) program requirements.

The IAA supports efforts to combat money laundering and terrorist financing, but these efforts must be risk-based and designed to fill identified gaps in the existing AML regulatory landscape rather than duplicate the protections that already exist. Like the AML proposal, the IAA believes that the CIP proposal is too prescriptive, and it will be challenging for advisers to sufficiently tailor their programs. Our comments thus urge the agencies to develop a more tailored approach that effectively addresses specific risks while avoiding unnecessary regulatory burdens, especially burdens on smaller investment advisers.

What’s Changing and Why It Matters

Advisers are not currently required to have a CIP. Under the proposal, they would need to:

• Establish reasonable procedures to verify the identity of any person seeking to open an account and maintain records of the information used to verify the person’s identity (CIP Requirement).
• Provide clients with adequate notice that the adviser is requesting information to verify their identities (Notice Requirement).
• Include procedures for responding to circumstances in which the adviser cannot form a reasonable belief that it knows the true identity of a client (Verification Requirement).
• Include procedures for making and maintaining records related to verifying customer identity, as well as procedures for how to do so (Recordkeeping Requirement).

The IAA Is Taking Action

We’re actively fighting for changes to the proposal to promote your interests and ensure regulatory clarity. Here are some key recommendations:

• Exclude Certain Clients and Services: Exclude advisory services that: don’t involve management of client assets; are provided to clients that are already subject to CIP rules; and are provided to lower-risk clients.
• Exclude Certain Investment Advisers: Exclude sub-advisers that do not have a relationship with the client and confirm that advisers do not have an obligation to implement a CIP with respect to the underlying investors of a private fund.
• Exclude Smaller Advisers: Exclude smaller advisers due to the significant burden the proposed changes would place on their limited resources without providing a substantial benefit.
• Ease the Practical Implementation Burden on Advisers: Provide additional flexibility and address certain other practical issues concerning the way the proposal requires implementation of the CIP.
• Exclude Advisers from Some of the CIP Recordkeeping Requirements: Give advisers more flexibility to meet their recordkeeping obligations.
• Exclude Advisers from Some of the CIP Verification Requirements: Give advisers more flexibility to meet their verification obligations.
• Do Not Require Written Agreements with Service Providers that Implement the Adviser’s CIP: Give advisers the flexibility to oversee their service providers based on the nature and size of their businesses and in light of the risks posed by the facts and circumstances.
• Provide a More Reasonable Implementation Period: Provide at least 18 months for larger advisers and at least 24 months for smaller advisers to implement the proposal.
• Allow the CIP and AML Proposals to Be Considered Together: Because of their interrelatedness, the agencies should reopen the CIP proposal if and when the AML proposal is finalized to allow commenters to address CIP obligations in light of changes made to the AML proposal.

The IAA Has Your Back

The IAA, in addition to submitting detailed comments on the proposal, is actively engaging with the Treasury Department and the SEC to address our concerns and advocate for changes that benefit you.

We will provide ongoing updates and analysis through our committees, website, newsletter, and social media channels. Stay informed and connected with the latest developments.

The IAA has established a member workstream focused on AML and sanctions issues. Please contact IAA Associate General Counsel, William Nelson, directly at william.nelson@investmentadviser.org, if you’d like to join the group or with any questions or comments on the proposal.