As communicated to me by the business line....A business prospect is classified as a private investment fund company dedicated to special situation investments and other alternative credit opportunities in the lower middle market. They primarily provide capital to distressed companies they are confident in for turnaround situations. They also handle investments involving complex financial transactions, restructurings, opportunistic acquisitions, and other alternative special situational financings. They get paid a management & performance fee and only get paid the performance fee upon realization of an investment. They don’t originate all loans (but can) but rather mainly participate with a group of banks/funds to provide financing to distressed companies. Often they take a percentage of ownership in the companies they invest in. They are required to perform KYC for their investors and there is a subscription document for each investor. They are technically under SEC oversight but don’t require SEC registration unless they are a $150MM fund or larger (which they choose to stay below). They are not required to file an ADV. They don’t do residential mortgages currently but are looking into that business for a future fund. Would that classify them as a RMLO and require them to develop and implement a BSA/AML Program and file Suspicious Activity Reports as appropriate? Any other BSA/AML considerations?

If they get into the residential loan business and meet this definition, they would be a RMLO:

(1) Residential mortgage lender or originator. A residential mortgage lender or originator includes:

(i) Residential mortgage lender. The person to whom the debt arising from a residential mortgage loan is initially payable on the face of the evidence of indebtedness or, if there is no such evidence of indebtedness, by agreement, or to whom the obligation is initially assigned at or immediately after settlement. The term “residential mortgage lender” shall not include an individual who finances the sale of the individual's own dwelling or real property.

(ii) Residential mortgage originator. A person who accepts a residential mortgage loan application or offers or negotiates terms of a residential mortgage loan.

(iii) Residential mortgage loan. A loan that is secured by a mortgage, deed of trust, or other equivalent consensual security interest on:

(A) A residential structure that contains one to four units, including, if used as a residence, an individual condominium unit, cooperative unit, mobile home or trailer; or

(B) Residential real estate upon which such a structure is constructed or intended to be constructed.