By Alyssa Barcheers, Managing Director, U.S.
After two decades of delays, deliberations, and revisions, in August 2024 the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) adopted a landmark rule requiring investment advisers to establish anti-money laundering and countering the financing of terrorism (AML/CFT) programs.
This long-awaited rule has been anticipated by regulators and financial industry professionals alike since the passage of the USA PATRIOT Act in 2001. Previously, investment advisers were not subject to the Bank Secrecy Act (BSA) that banks, broker dealers, and other financial institutions were. However, this rule brings investment advisers into alignment with the rest of the financial industry who are already subject to such AML/CFT requirements.
Does this rule apply to my firm?
The rule applies to most SEC RIAs and SEC ERAs, with a few exceptions. The final rule expands the definition of “financial institution” in the existing BSA to include “investment advisers”. Specifically, “investment adviser” is defined as any investment adviser registered with or required to register with the SEC (SEC RIAs), and any investment adviser that reports information to the SEC as exempt reporting advisers (SEC ERAs). The rule does exclude a subset of SEC RIAs and SEC ERAs from the rule (mid-size advisers, multi-state advisers, pension consultants, and RIAs that are not required to report any AUM to the SEC). The rule also provides an exemption for certain foreign private advisers.
I meet the definition of an investment adviser. What do I need to do?
The rule requires that covered advisers:
- Implement an AML/CFT program
- File certain reports, such as Suspicious Activity Reports (SARs), with FinCEN
- Keep certain records, such as those relating to the transmittal of funds, and
- Fulfill certain other obligations applicable to financial institutions subject to the BSA and FinCEN’s implementing regulations, such as special information sharing procedures
With respect to the AML/CFT program, the Final Rule requires, “Each investment adviser shall develop and implement a written AML/CFT program that is risk-based and reasonably designed to prevent the investment adviser from being used for money laundering, terrorist financing, or other illicit finance activities and to achieve and monitor compliance with the applicable provisions of the Bank Secrecy Act.”
The rule then outlines the essential requirements that every AML/CFT program must contain. At a minimum, an adviser’s program must:
- Establish and implement policies and procedures that are reasonably designed to prevent the investment adviser from being used for money laundering, terrorist financing, or other illicit finance activities
- Provide for independent compliance testing
- Designate a person responsible for overseeing the program
- Provide ongoing training, and
- Implement procedures for conducting ongoing customer due diligence
When do I need to do this by?
Investment advisers must have all components of the rule implemented and begin all required reporting by January 1, 2026.
Will this be overturned like the private funds rule?
Likely not. In February 2024, the U.S. Department of the Treasury published a risk assessment that documents the myriad of illicit finance threats involving investment advisers (RIAs, ERAs, and state-registered advisers alike). The assessment found that the highest illicit finance risk is among ERAs who are exempt from registration (notably, though, State RIAs and ERAs are excluded from the final rule). These findings appear to give FinCEN the foothold it needed to establish a solid legal framework for issuing the rule.
Who can I call for help?
IQ-EQ’s dedicated AML and Regulatory Compliance departments are ready to assist with designing and implementing a compliant AML program tailored to your firm’s needs.
About the author
Alyssa is a Managing Director at IQ-EQ with seven years experience as an SEC compliance consultant. Alyssa specializes in regulatory compliance under the Investment Advisers Act of 1940 including designing, implementing, and enforcing compliance policies and procedures and completing regulatory filings for SEC Registered Investment Advisers. Alyssa is a licensed attorney in the state of Texas and received her J.D. from Texas Tech University School of Law.
