US Mutual Funds Must Apply 'Know Your Customer' Rules From October

by Leroy Baker, for LawAndTax-News.com, New York

27 August 2003

Rules developed under the Patriot Act to prevent money-laundering will come into effect in the US for mutual funds and other types of investment fund as of 1st October this year, and are not likely to be very palatable to investors.

For new customers, mutual funds will have to apply the following 'know your customer' principles developed by the SEC and the Treasury's Financial Crimes Enforcement Network:

• Collect name, street address, tax ID or Social Security number and birth date;
• Compare new account holders' names to lists of suspected terrorists and organizations; and
• Verify the identity of new account holders soon after opening accounts.
  

Other rules already in effect include a requirement that investment funds check out all accounts holding a balance of more than US$5,000 for any suspicious financial activity, which the firms must of course then report to the authorities.

The SEC and Treasury Department estimate that complying with the new customer-identification rules could cost the fund industry as much as $209 million in its first year and as much as $169 million each year after that. Libertarian organisations complain that the new rules go too far in breaching individual privacy, and some industry commentators fear that investors will be turned off by intrusive questioning.

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