By Richard Casciani, Managing Director, U.S.
Effective January 1, 2026, most U.S. Securities and Exchange Commission (SEC) Registered Investment Advisers (RIAs) and SEC Exempt Reporting Advisers (ERAs, or ‘Covered Advisers’) will be deemed “financial institutions” under the Bank Secrecy Act (BSA). As such, Covered Advisers will become subject to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) rule (the final rule) requiring investment advisers to establish anti-money laundering and countering the financing of terrorism (AML/CFT) programs. In connection with this requirement, Covered Advisers will be subject to certain filing and recordkeeping obligations, which are summarized below.
Suspicious Activity Reporting (SARs)
Historically, RIAs and ERAs have not been required to report suspicious activity to FinCEN, and advisers that voluntarily elected to report such activity have not had the protection from liability that applies to financial institutions when filing SARs. The final rule requires that Covered Advisers file SARs for transactions “conducted or attempted by, at, or through” the Covered Adviser in the following instances:
- The transaction involves or aggregates funds or other assets of at least $5,000, and
- The Covered Adviser knows, suspects, or has reason to suspect that the transaction (or a related pattern of transactions):
- involves funds derived from illegal activity or is intended or conducted to hide or disguise funds or assets derived from illegal activity
- is designed to evade BSA reporting requirements
- has no business or apparent lawful purpose or is not the sort in which the customer would normally be expected to engage, and the Covered Adviser knows of no reasonable explanation for the transaction after examining the available facts, or
- involves use of the adviser to facilitate criminal activity
FinCEN interprets “transactions conducted or attempted by, at, or through” to encompass a Covered Adviser’s advisory activities on behalf of its clients. Examples the final rule provides include when:
- a Covered Adviser’s customer provides an instruction to the Covered Adviser to pass on to the custodian (e.g., an instruction to withdraw assets, to liquidate particular securities, or a suggestion that the adviser purchase certain securities for the customer’s account) or
- a Covered Adviser instructs a custodian to execute transactions on behalf of its client
The final rule specifies that a Covered Adviser’s obligation to file a SAR does not extend to activity that is outside the scope of its AML/CFT program (e.g., non-advisory services). Such excluded, non-advisory services include, for example, instances where a Covered Adviser’s personnel may perform certain roles with respect to the portfolio companies in which its customer fund invests. Generally, activities undertaken in connection with those roles (e.g., making managerial or operational decisions about the activities of portfolio companies) would not be “advisory activities.” However, this exception regarding portfolio companies can become opaque in practice, as the final rule suggests that information that a Covered Adviser obtains through diligence in connection with an investment in a portfolio company could be reportable. FinCEN provides examples of when a Covered Adviser may be required to file a SAR on a portfolio company, including when the Covered Adviser:
- is approached by an investor about unusual access to technology developed by a portfolio company
- becomes aware that an investor has reached out to a portfolio company for such information, or
- is asked to obscure participation by an investor in a particular transaction to avoid notification to government authorities
Currency Transaction Reports (CTRs) and recordkeeping and travel rules
The final rule requires Covered Advisers to file CTRs and create and retain records for transmittals of funds.
Regarding CTRs, in instances where Covered Advisers are not involved in one or more related transactions in currency of more than $10,000, an investment adviser will generally not need to file CTRs. However, all investment advisers are currently required to file reports for the receipt of more than $10,000 in currency and certain negotiable instruments using joint FinCEN/Internal Revenue Service Form 8300. Under the final rule, a CTR will replace Form 8300 for Covered Advisers, requiring the Covered Advisers to file CTRs and create and retain records for transmittals of funds.
Under the recordkeeping and travel rules, financial institutions must create and retain records for transmittals of funds and ensure that certain information pertaining to the transmittal of funds “travels” with the transmittal to the next financial institution in the payment chain – i.e., record originator and beneficiary information for transactions. When a financial institution accepts and processes a payment sent by or to its customer, then the financial institution would be the “transmitter’s financial institution” or the “recipient’s financial institution,” respectively. The transmitter’s financial institution must obtain and retain the name, address, and other information about the transmitter and the transaction. The Recordkeeping Rule also requires the recipient’s financial institution (and in certain instances, the transmitter’s financial institution) to obtain or retain identifying information on the recipient. The recordkeeping and travel rules apply to transmittals of funds that equal or exceed $3,000.
FinCEN makes note that in circumstances where a Covered Adviser’s customer has a direct account relationship with a qualified custodian that is subject to AML/CFT requirements, including the recordkeeping and travel rules, such as a bank or broker-dealer, and requests that such qualified custodian initiate a funds transfer or transmittal of funds, the Covered Adviser would generally not be required to comply with the requirements of the recordkeeping and travel rules. In this circumstance, the qualified custodian would have the obligation to comply with the recordkeeping and travel rules as the entity that received the instruction and transmitted the funds. This would likely apply to many Covered Advisers advising retail customers that custody customer assets with a qualified custodian. However, for Covered Advisers advising private funds, their authority and discretion over the fund and customer assets in the fund may make them more likely to have to comply with the recordkeeping and travel rules. In terms of the information that Covered Advisers may have, FinCEN notes that Covered Advisers are required to maintain “originals of all written communications received, and copies of all written communications sent by such investment adviser relating to . . . Any receipt, disbursement or delivery of funds or securities.” This requirement may assist Covered Advisers in satisfying their obligations to identify relevant information that may be required to be collected under the recordkeeping and travel rules in those circumstances where a Covered Adviser is a transmitter’s financial institution or recipient’s financial institution.
Planning ahead
While many RIAs and ERAs already maintain AML programs, implementation of certain requirements of the final rule, including addressing applicable filing and recordkeeping requirements, may entail significant attention and planning. As such, Covered Advisers should begin implementation efforts well in advance of the January 1, 2026, compliance date.
Additional details regarding the final rule can be found here in the Federal Register and here in the Fact Sheet. Our overview of the final rule is available here.
IQ-EQ will continue to monitor any further developments, and our dedicated AML and Regulatory Compliance departments are ready to assist with designing and implementing a compliant AML program and addressing or advising on related needs. Contact us today if you want to learn more.
About the author
Richard Casciani is a Managing Director in IQ-EQ’s Regulatory Compliance department in the U.S. He has extensive experience providing compliance consulting support to investment advisers, commodity pool operators and commodity trading advisors. Throughout his career in compliance, Rich has assisted a variety of investment managers, including hedge fund, private equity, venture capital, fund-of-fund, quantitative and other managers, with various ongoing SEC, CFTC and NFA compliance requirements and best business practices.
