Exiger’s compliance professionals have decades of experience managing compliance risks for firms representing every angle of the securities industry, from global investment banks to prime brokerage houses to prop trading shops. We have particular industry expertise helping securities businesses in market segments including: hedge funds / registered investment advisors / private equity firms; prime brokerage; complex transactions / M&A; and, trading systems / trade surveillance. We can provide securities industry participants with all of our compliance program review and program design offerings, tailored to their specific business environment, regulatory expectations and risk exposure.

The Impact of CDD and Proposed AML Rules on Registered Investment Advisers and Hedge Funds

In response to growing concern over the vulnerability of the U.S. financial system to money launderers, FinCEN recently issued a new Customer Due Diligence (CDD) rule and has proposed a new Anti-Money Laundering (AML) rule that will have a major impact on Registered Investment Advisers (RIAs) and Hedge Funds. The RIA rule would, for the first time, require that RIAs and Hedge Funds establish and execute a risk-based AML program. Exiger works with RIAs and Hedge Funds, assisting in implementing or elevating BSA/AML programs to meet the rigorous regulations and standards that have governed financial institutions for years. 

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Our accomplished team of professionals includes former heads of Financial Crime Compliance at global financial institutions, former enforcement attorneys for the NYSE and NASD (now Finra), Financial Crime Compliance auditors, country heads of Financial Intelligence Units, FBI agents, forensic accountants, Manhattan Assistant District Attorneys, and Assistant United States Attorneys, bringing together a powerful combination of BSA/AML and sanctions compliance experience.

This wide-ranging expertise informs our understanding and approach to building or bolstering BSA/AML and sanctions compliance programs, thus helping our clients mitigate enforcement and reputational risks. Exiger’s team of experts review, design, and implement compliance programs that are comprehensive, risk-based, and sustainable— not to mention adaptive to today’s ever-changing financial crime and regulatory landscape.

Customer Due Diligence Requirements

“Closing this gap is important. Investment Advisers are on the front line of a multi-trillion dollar sector of our financial system. If a client is trying to move or stash dirty money, we need investment advisers to be vigilant in protecting the integrity of their sector.”
Jennifer Shasky Calvery, Director of FinCEN

FinCEN has issued a rule that will require certain financial institutions to develop a robust customer due diligence (CDD) program. The CDD requirement is not included in the pending RIA rule proposal. The CDD program consists of the following:

  • Identification and verification of the identity of customer
  • Identification and verification of the beneficial owners of entity-level customers
  • Understanding the nature and purpose of the customer relationship
  • Ongoing monitoring to maintain and update customer information and to identify and report suspicious activity

CDD requirements and those relating to the Customer Identification Program, may ultimately be included in the AML program requirements for RIAs. However, conducting due diligence on fund investors will be essential to fulfilling certian requirements of the proposed RIA rule, particularly detecting and reporting suspicious activity.

Proposed Rule: Establishment of an AML Program

When adopted, Hedge Funds and Registered Investment Advisers will be obligated, by law, to formulate and execute a risk-based AML program with certain basic attributes, including:

  • Written BSA/AML policies and procedures
  • Monitoring and reporting of suspicious activity
  • Filing of Currency Transaction Reports
  • Independent testing of the BSA/AML program
  • Ongoing employee training

How Exiger Can Help

  • Independent Testing - One of the key requirements of the proposed AML program rule is that the program be independently tested. Exiger has vast experience in independent testing and can work with a Hedge Fund or RIA to develop or strengthen its independent compliance testing program, or can independently test the AML program on the client’s behalf.
  • Risk Assessment - We will partner with our clients to assess their specific compliance risks and control framework in the context of their business strategy, product offerings, customer and fund investor base, and geographic risk, developing a strategic action plan tailored to each client’s risk appetite. The risk assessment allows Exiger to “right-size” its clients’ AML compliance framework.
  • Proactive Development of the AML Compliance Program - Our team will review the Hedge Fund’s or RIA’s compliance program—including policies, procedures, and governance structure to ensure it fulfills the strict regulatory requirements. If any deficiencies are found, we aid in developing short- and long-term risk-based solutions to ensure that such issues are addressed and resolved. If the Hedge Fund or RIA does not have an existing AML compliance program, our team will work with them to create policies, procedures, internal controls, and a governance structure tailored to address the specific risks identified in the risk assessment.
  • Training - Exiger develops bespoke training for Hedge Funds or RIAs, specifically targeting key risk areas identified through the risk assessment. We deliver training to all compliance-related staff as well as to board and C-suite executives, as needed. Beyond enabling our clients to appropriately consider AML risks, this training carries additional, vital significance—after all, instilling a “culture of compliance” in corporations and other private sector institutions has become a central focus of financial regulators and the Department of Justice.
  • Remediations - Should a gap in a client’s AML framework be identified from a know your customer (KYC)/CDD or transaction monitoring perspective, Exiger will leverage our unmatched investigative and due diligence background to assist in the remediation process, ensuring that our clients resolve and remediate any issue in a robust, efficient, and sustainable manner.