ICI Supports Anti-Money Laundering Rules, Urges Appropriate Transition Period, September 2002

Washington, DC, September 6, 2002 - The Institute strongly supports effective rules to combat potential money laundering activity, such as the proposed rules requiring mutual funds to adopt and implement customer identification programs (CIPs), but, in a recent comment letter, urges Treasury and the SEC to consider appropriate implementation and transition periods for the rule, in order to accommodate the significant systems and other changes that will have to be made to comply with its requirements.

set a compliance date at least six months after the rule is adopted in its final form, and
provide an additional six-month transition period during which the identification of new customers using old application forms can be completed as soon as practicable after an account is opened.

The Institute views six months as the absolute minimum amount of time needed to come into compliance with the rule, and strongly encourages Treasury and the SEC to consider a nine-month grace period to allow larger mutual fund complexes and transfer agents to make the necessary systems changes.

The Institute makes other recommendations regarding issues raised by the proposed rules, including:

a recommendation that the definition of "customer" be limited to shareholders of record and individuals who open new accounts on behalf of or for the benefit of shareholders of record;
a request that Treasury and the SEC clarify that exchanges of fund shares would not cause an existing fund shareholder to become a customer for purposes of the rule;
a recommendation that the proposed rule be revised to provide that verification records must be retained for five years from the date the verification is performed, rather than five years from the closing date of the accounts to which the records relate;
a recommendation that the final rule incorporate a materiality standard stating that the records retained pursuant to the rule need only reflect the resolution of material discrepancies in the information obtained pursuant to a CIP;
a recommendation that Treasury and the SEC clarify that the rule does not impose specific, ongoing review and/or monitoring responsibilities on fund boards; and
a recommendation that either Treasury or the SEC act as a clearinghouse for government-issued lists of terrorists and terrorist organizations by formally or informally providing a catalog of the specific lists that mutual funds and other financial institutions are required to check, at least with respect to compliance with the CIP rule.

Section 326 of the USA PATRIOT Act requires Treasury and the SEC to adopt the CIP rule in final form by October 25, 2002.