SEC Extends Relief Allowing BDs to Rely on RIAs for Customer Identification
The SEC’s Division of Trading Markets has extended previous no-action relief allowing a broker-dealer to rely on a registered investment adviser to perform some or all of its customer identification obligations. The BD may rely on the RIA provided (1) reliance is reasonable under the circumstances, (2) the RIA is registered with the SEC, and (3) the RIA executes an agreement with the BD agreeing to implement a compliant money laundering program, perform its requirements, promptly disclose suspicious activity, certify annually, and provide necessary books and records. The staff indicated that it may be more reasonable to rely on an affiliated adviser. The no-action relief expires in two years.
OUR TAKE: As a practical matter, because of the significant conditions, the relief is only useful for a BD relying on an affiliated RIA. However, it avoids having to duplicate the customer identification process.