Alert January 12, 2010

SEC Staff Grants Extension of No-Action Relief That Permits Broker-Dealers to Rely on Registered Advisers to Perform AML Customer Identification Programs

The staff of the SEC’s Division of Trading and Markets issued a no-action letter extending no‑action relief originally granted in 2004 that allows a registered broker-dealer to rely on a registered investment adviser to perform some or all of  the broker-dealer’s anti-money laundering (“AML”) customer identification program (“CIP”) with respect to shared customers.  The AML rules applicable to broker-dealers allow reliance on a third party to conduct elements of the broker-dealer’s CIP only if certain conditions are met, one of which is that the third party must be subject to a rule requiring it to maintain an AML program (an “AML Rule”).  Registered advisers cannot meet this condition because they are not subject to an AML Rule.  One was proposed for them in 2002 but withdrawn in 2008 (as discussed in a December 15, 2008 Goodwin Procter Client Alert).

The relief is subject to the following conditions:  (l) the broker-dealer’s reliance on the investment adviser is reasonable under the circumstances; (2) the investment adviser is registered with the SEC; (3) the investment adviser enters into a contract with the broker-dealer requiring the adviser to certify annually to the broker-dealer that the adviser has implemented its own AML program that is consistent with Bank Secrecy Act requirements; and (4) the adviser (or its agent) performs the specified requirements of the broker dealer’s CIP.  The relief is automatically withdrawn on January 10, 2011 and is subject to reconsideration if an AML rule for registered advisers is proposed before that date.