Overview of FinCEN’s New AML Rule
The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) has finalized new anti-money laundering (AML) and countering the financing of terrorism (CFT) regulations applicable to certain investment adviser firms. The rule expands the scope of the Bank Secrecy Act (BSA) to include investment advisers registered with the U.S. Securities and Exchange Commission (SEC) and exempt reporting advisers (ERAs). This significant regulatory development is designed to protect the U.S. financial system from being used by criminals for illicit finance activities, including money laundering and terrorist financing.
Who is Covered by the New Rule?
The new AML/CFT rule applies to:
SEC-Registered Investment Advisers: All advisers registered with the U.S. Securities and Exchange Commission.
Exempt Reporting Advisers (ERAs): Advisers exempt from registration under Section 203(m) of the Investment Advisers Act, which includes large (more than $100 million AUM) advisers to private funds.
Venture Capital Fund Advisers: Advisers exempt from registration under Section 203(l) of the Investment Advisers Act, which primarily advise venture capital funds.
These investment advisers are now considered “financial institutions” under the BSA and must implement comprehensive AML programs and file Suspicious Activity Reports (SARs) with FinCEN.
Who is Excluded from the Rule?
Some investment advisers are excluded from the new AML requirements. These include:
State-Registered Investment Advisers: Advisers registered with state regulatory bodies.
Certain SEC-Registered Investment Advisers:
– Advisers not reporting assets under management on Form ADV.
– Advisers registered with the SEC solely because they are mid-sized advisers (with $25 million to $100 million in assets under management), multi-state advisers, or pension consultants.
– Foreign Private Advisers: Those qualifying for an exemption under the foreign private adviser exemption.
Exempted Family Office Advisers: Advisers which are not required to register with the SEC on the basis of only providing advisory services to a single family.
Advisers qualifying for any of these exemptions do not need to establish or maintain AML/CFT programs.
Key Requirements for Covered Advisers
Covered investment advisers must implement a risk-based AML/CFT program that meets the following requirements:
- Policies and Procedures: Advisers must develop policies and procedures to prevent money laundering and other illicit finance activities.
- Independent Testing: Advisers must conduct independent testing of their AML program by qualified internal or external personnel.
- Designated Compliance Officer: Each adviser must designate a person responsible for implementing and monitoring the AML/CFT program.
- Ongoing Training: Appropriate staff must receive regular training on AML procedures.
- Customer Due Diligence (CDD): Advisers must establish risk-based procedures to understand the nature and purpose of customer relationships, develop customer risk profiles, and monitor transactions to identify suspicious activity.
- Filing Suspicious Activity Reports: Advisers must file a suspicious activity report (SAR) with FinCEN if they know, suspect, or have reason to suspect that a transaction involving at least $5,000 violates federal law or has no apparent lawful purpose.
- Currency Transaction Report: Advisers will be required to file a Currency Transaction Report (CTR) for certain “transactions in currency” equal to or greater than $10,000 with FinCEN.
- Recordkeeping And Travel Rules: For certain transactions, advisers will have to obtain beneficiary information & pass on to Financial Institutions.
- Section 314(A) Requests: Advisers will be required to respond to law enforcement requests under USA PATRIOT Act.
Compliance Timeline and Future Focus
The final compliance date for this rule is January 1, 2026. By this deadline, covered advisers must have a fully operational AML/CFT program. FinCEN has delegated examination authority to the SEC, meaning that SEC examinations of investment advisers will include a focus on compliance with these AML obligations.
Continuing Education Opportunity
To help investment adviser representatives understand the requirements of FinCEN’s new AML rule, RIA Compliance Consultants Inc. offers an investment adviser representative continuing education (IAR CE) course that covers the basic requirements of the rule. This course provides a comprehensive overview of the AML/CFT program requirements and the steps advisers must take to comply with this new rule. You can learn more about this course and register for it at the following link:
Ethics & Professional Responsibility: New AML Requirements for Investment Advisers
Conclusion
The new FinCEN AML rule marks a pivotal change for SEC-registered investment advisers and certain ERAs, requiring them to implement comprehensive AML/CFT programs. These programs aim to protect the U.S. financial system and provide valuable intelligence to law enforcement agencies. Investment advisers should promptly assess their obligations under the rule and begin developing their AML programs well before the January 1, 2026 deadline to ensure full compliance.
Disclaimer and Disclosure
This regulatory alert is a summary which is general in nature and offered only for educational purposes. There is no warranty associated with this regulatory alert. It should not be considered as a comprehensive review or analysis of this development. There are certain requirements and exceptions outlined in the rule which are not covered in this regulatory alert. There may be additional obligations and nuances not covered here. Each investment adviser firm is unique, and specific guidance may be required to address your firm’s circumstances. This communication is not intended to constitute compliance consulting advice or apply to any particular investment adviser firm’s specific situation without further analysis. This regulatory alert is not a safe harbor or a legal opinion. Merely reading this regulatory alert does not create an engagement with RIA Compliance Consultants, Inc. The reader should study the actual guidance, rule or enforcement action in detail and consult with his or her compliance professionals. This information in this regulatory alert may become out of date.
Posted by Bryan Hill
Labels: Anti-Money Laundering
