AML & Beneficial Ownership Regulation Changes – What You Need to Know

As the regulatory landscape continues its constant evolution, asset managers need to be aware of some recent changes from the US Securities and Exchange Commission (SEC) and the Financial Crimes Enforcement Network (FinCEN) relating to anti-money laundering (AML) and customer due diligence (CDD) in the Cayman Islands and United States.

In February 2024, FinCEN in the United States issued a notice of proposed rulemaking that, if made final, will have impact on US RIAs and ERAs. Under the proposed rule, the definition of "financial institution" would be expanded to include certain investment advisors and establish AML/CFT (combating the financing of terrorism) requirements for RIAs and ERAs. This would require RIAs and ERAs to implement a formal AML/CFT program, file a suspicious activity report, and maintain records relating to the transmittal of funds and follow additional obligations as applicable under the Bank Secrecy Act (BSA).

Further to the February 2024 proposal, in May 2024, the SEC and FinCEN proposed additional CIP rules that would impose customer identification program obligations on US RIAs and ERAs. The intention is to further broaden the scope of proposed obligations. Under the additional proposal's CIP rules there may be additional requirements coming into force that require RIAs and ERAs to:

• Document and implement risk-based customer identity verification procedures
• Establish and follow definitive record-keeping procedures of all customer identity verifications
• Name screening for government list comparison
• Notification procedures for customer identification

These proposals do not include requirements related to beneficial ownership obligations but may be subject to further change. Additional elements are anticipated to be addressed through future joint rulemaking between FinCEN and the SEC, but it should be noted that the SEC Commissioner Mark Uyeda did not vote in favor of the additional CIP proposal, noting that some rules may be overly broad. His preference is to await finalization of the AML/CFT requirements proposal before issuing further proposed rulemakings.

SS&C will continue to monitor and provide information and support as this proposal is further progressed.

Both the US and the Cayman Islands are adopting new regulations for beneficial ownership. In the Cayman Islands, the Beneficial Ownership Transparency Act (BOTA) was approved this past December and will replace and expand upon the previous Beneficial Ownership Regime. The intent of this change is to ensure transparency of the beneficial ownership of Cayman Islands entities and will include funds registered under the Private Funds Act or the Mutual Funds Act. BOTA is currently live, and the rollout and implementation will be phased in throughout 2024. Some funds may choose to meet compliance requirements by using a licensed fund administrator to make beneficial ownership data available to the Registrar of Companies.

In the US, FinCEN has recently published rules requiring that beneficial ownership information (BOI) reported to FinCEN be stored in a secure, non-public database protected by information security methods and controls. These requirements will take effect in a phased approach, with a deadline of January 1, 2025 for companies created or registered to do business before January 1, 2024. Reporting companies created or registered in 2024 will have 90 calendar days to file after receiving actual or public notice that its creation or registration is effective, while those created or registered after January 1, 2025 will have only 30 calendar to file their initial BOI report. There are exemptions that are applicable for many SS&C clients and administered funds. SS&C encourages clients to monitor this reporting rule and the 23 available exemptions for specific types of entities, which are not required to submit BOI reports to FinCEN.

SS&C, as the world's largest full-service fund administrator, is well equipped to assist with the application of customer due diligence, identification, verification and other related procedures. SS&C currently services thousands of funds in jurisdictions for which similar obligations already exist and are imposed on fund clients. The extension of such services to US funds is an addition to the already existing system and process infrastructure in place. Upon finalization of these proposals, SS&C will be in a position to extend and expand the level and extent of the due diligence services provided to US fund clients.

SS&C offers solutions and services to help you meet the compliance requirements of these regulatory changes. Download our brochure to learn more about our services.