Recently, the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) issued a final rule, Anti-Money Laundering/Countering the Financing of Terrorism Program and Suspicious Activity Report Filing Requirements for Registered Investment Advisers and Exempt Reporting Advisers. This rule expands the definition of “Financial Institution” to include certain investment advisors and thereby extends AML program requirements under the Bank Secrecy Act to this category of investment advisor.
Types of RIAs Subject to New Requirements
- Most SEC registered investment advisors and exempt reporting advisors (ERAs) filing with the SEC are included in the new definition of Financial Institution and therefore subject to the new AML program requirements.
- Excluded from the definition are RIAs that are registered with the SEC solely because they are (i) mid-sized advisers, (ii) multi-state advisers, or (iii) pension consultants. Also excluded are RIAs that are not required to report any assets under management to the SEC on Form ADV.
- State registered investment advisors are also excluded from the definition.
- With regard to RIAs or ERAs that have a principal office and place of business outside the United States, the new requirements only apply to the firms’ advisory activities that (i) take place within the United States, including through the involvement of U.S. personnel or (ii) provide investment advisory services to a United States person or a foreign-located private fund with an investor that is a United States person.
AML Requirements
The final rule requires RIAs and ERAs to do the following:
- Implement a risk-based and reasonably designed AML/CFT program to prevent the investment advisor from being used for money laundering, terrorist financing, or other illicit finance activities, including the establishment and implementation of adequate internal policies, procedures, and controls;
- Designate one or more AML compliance officers;
- Provision of ongoing AML training for appropriate personnel;
- Independent testing of the AML program’s effectiveness by the advisor’s personnel or a qualified outside party. For investment advisors with less complex operations and lower money laundering profiles, FINCEN stated that these firms may “consider utilizing a shared resource as part of a collaborative arrangement with similarly less complex and lower risk profile advisers to conduct testing.”
- File certain reports, such as Suspicious Activity Reports (SARs), with FinCEN;
- Keep certain records, such as those relating to the transmittal of funds (i.e., comply with the Recordkeeping and Travel Rules); and
- Fulfill certain other obligations applicable to financial institutions subject to the BSA and FinCEN’s implementing regulations, such as special information sharing procedures.
The new rule allows covered investment advisors to contractually delegate certain aspects of its AML/CFT program to custodians, broker-dealers, and other third parties. Nevertheless, covered investment advisors will still be responsible and liable for compliance with the AML/CFT requirements and will need to be able to demonstrate compliance with these requirements.
FINCEN will delegate its examination authority to the SEC, which is in line with the existing delegation of examination authority to the SEC with regard to broker-dealers and mutual funds.
Compliance Date
The compliance date for the new rule is January 1, 2026.
For more information about these rule changes, please contact NCA Compliance.
Hayley Nelson is the President and Principal Consultant of NCA Compliance, Inc., a compliance consulting firm providing a wide range of customized compliance solutions for investment advisors. Ms. Nelson previously worked for the Securities and Exchange Commission and a large investment manager in New York.
