In a letter to the U.S. Securities and Exchange Commission (SEC) last week, the American Institute of CPAs (AICPA) commented on RIN 1506-ab66, Customer Identification Programs for Registered Investment Advisers and Exempt Reporting Advisers as proposed by the Financial Crimes Network (FinCEN). The proposed ruling under FINCEN 2024-10738 specifically addresses concerns regarding the implications of the proposed regulations on Registered Investment Advisers (RIAs).
The AICPA is asking the SEC to address concerns of redundant duties when an RIA holds all their investments with a custodian and the significant administrative burden on small CPA firms that are also small RIAs.
Redundancy
The proposal’s reliance on excluding only RIAs with custodians for mutual funds overlooks practical considerations of RIAs that hold all their clients’ investments as custodians. The additional independent verification requirements outlined in the proposal would result in redundant compliance obligations.
Administrative Burden
The introduction of additional regulatory requirements, such as customer identification programs imposes a significant administrative burden on small RIAs, especially when the addition of this regulation regarding independent verification obligations is a duplication. As such, RIAs whose client investments are held by an account custodian should be exempt from the proposed regulation, avoiding regulatory duplication and placing the compliance burden on the entity providing the client account, rather than a third-party RIA.
“The cumulative impact of regulatory requirements on small RIAs should not be overlooked,” said Pamela Ladd, AICPA’s senior manager of Public Accounting (Personal Financial Planning). “As regulatory burdens continue to mount, smaller firms face heightened challenges in maintaining compliance, thereby potentially deterring new entrants, and limiting competition within the industry.”
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