Last week, the American Institute of Certified Public Accountants (AICPA) commented in a letter to the Securities and Exchange Commission (SEC) on the Financial Crimes Enforcement Network’s (FinCEN) proposed RIN 1506-ab66, Client Identification Program for Registered Investment Advisers and Exempt Reporting Advisers. The proposed ruling under FINCEN 2024-10738 specifically addresses concerns about the impact of the proposed regulation on registered investment advisers (RIAs).
The AICPA is asking the SEC to address concerns about duplicative obligations when RIAs place all of their investments with a custodian and the significant administrative burden placed on small CPA firms that are also small RIAs.
Redundancy
The proposal relies on an exemption only for RIAs that have mutual fund custodians and ignores practical considerations for RIAs that hold all of their client investments as custodians.The additional independent verification requirements outlined in the proposal would result in duplicative compliance obligations.
Administrative burden
The introduction of additional regulatory requirements, such as client identification programs, would impose a significant administrative burden on small RIAs, especially if the addition of this regulation regarding independent verification obligations is duplicative. Therefore, RIAs whose client investments are held by account custodians should be exempt from the proposed regulations to avoid regulatory duplication and place the compliance burden on the entities offering client accounts, rather than on third-party RIAs.
“The cumulative impact of regulatory requirements on small RIAs should not be overlooked,” said Pamela Ladd, AICPA’s senior manager of Certified Public Accountants (Personal Financial Planning). “As regulatory burdens continue to grow, smaller firms face significant challenges in maintaining compliance, which in turn may discourage new entrants and limit competition within the industry.”
