New York partner Kay Gordon was quoted in a Compliance Reporter article titled, “FinCEN Diligence Rule Said to Hit Hedge Funds.” The article discussed a new rule released by the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). The rule requires covered firms to identify any natural persons that own 25 percent or more of a legal entity customer, or who controls such an entity.
While private funds are not covered persons and would in most cases not be subject to the rule (and the rule itself does not come into effect until May 11, 2018), the rule is already causing headaches for some fund advisers. “Although the rule exempts pooled investment vehicles advised by registered investment advisers, it implied that some firms may, as a risk management practice, want to obtain this beneficial owner information anyway—and so, out of an abundance of caution, some funds and service providers are seeking that information from clients even though they don’t necessarily have to,” Kay said. “It’s this fear about somehow not complying with the spirit of the law and therefore the law itself that is somewhat concerning, not the rule itself,” she explained.