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SEC Extends No-Action Letter Permitting Broker-Dealers to Rely on Certain Investment Advisers to Conduct Customer Identification Program Obligations

The Securities and Exchange Commission has extended a no-action letter dated February 12, 2004 (the 2004 Letter) from the Securities Industry Financial Markets Association (SIFMA) that permits broker-dealers, subject to certain conditions, to rely on registered investment advisers to perform some or all of a broker-dealer’s customer identification program (CIP) obligations. The 2004 Letter allows broker-dealers, in certain circumstances, to treat investment advisers as if they are subject to an anti-money laundering (AML) program even though the Department of Treasury’s Financial Crimes Enforcement Network has yet to adopt an AML program rule for investment advisers. The 2004 No-Action Letter was to be withdrawn on the earlier of (i) the date on which an AML program rule for investment advisers became effective, or (ii) February 12, 2005. Since an AML program rule has yet to become effective, the 2004 Letter was extended, at SIFMA’s request, multiple times. In response to SIFMA’s most recent request to extend the 2004 Letter, the SEC has extended the 2004 Letter’s no-action relief to January 11, 2015.

The CIP obligations require a broker-dealer to adopt written procedures for verifying the identities of customers (CIP Procedures). Broker-dealers may rely on certain financial institutions with mutual customers of the broker-dealer to perform CIP Procedures if the institution is subject to an AML program rule and is federally regulated. Under the 2004 Letter, a broker-dealer may treat an investment adviser as if it is subject to an AML program rule if (i) the broker-dealer’s reliance on the investment adviser to conduct CIP Procedures is reasonable and proper due diligence is conducted, (ii) the investment adviser is an SEC-registered US investment adviser, and (iii) the investment adviser agrees in a written contract with the broker-dealer to (a) implement a proper AML program and update it as necessary, (b) perform the required CIP Procedures, (c) disclose promptly to the broker-dealer potentially suspicious or unusual activity, (d) certify annually that representations in such agreement remain accurate and (e) comply with requests for its books and records relating to its CIP Procedures from the broker-dealer, the SEC, the broker-dealer’s self-regulatory organization or any authorized law enforcement agency.

Click here to read the SEC’s February 2004 No-Action Letter.

©2023 Katten Muchin Rosenman LLPNational Law Review, Volume III, Number 19
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About this Author

Our Financial Services Practice advises a broad spectrum of domestic and international fund managers, trading advisors, banks, brokerages and proprietary trading firms in all aspects of exchange-traded and over-the-counter commodities, securities and derivatives transactions. We help clients find business-based solutions and make business-driven decisions that are in compliance with applicable regulatory requirements. Our lawyers have extensive experience in the financial markets and are fully attuned to the need to provide advice quickly and efficiently in light of the time-sensitive and...

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