FinCEN Expands AML and CFT Requirements to Certain Investment Advisers

The Case

On Sep. 4, 2024, FinCEN published a final rule (Final Rule) adding certain RIAs and ERAs (collectively, Covered Advisers) to the definition of “financial institution” under the regulations implementing the BSA, and imposing on Covered Advisers broad AML and CFT program requirements, as well as other BSA recordkeeping and reporting requirements. The Final Rule represents a significant regulatory change for Covered Advisers and requires them to comply by Jan. 1, 2026. 

The Final Rule generally applies to any person, wherever located, (i) who is registered or required to register with the SEC under section 203 of the Investment Advisers Act of 1940 (Advisers Act) – also known as registered investment advisers (i.e., RIAs); or (ii) who is exempt from SEC registration under section 203(l) or 203(m) of the Advisers Act (i.e., ERAs), subject to certain exceptions.

Regulatory Implications

The Final Rule establishes comprehensive compliance requirements for Covered Advisers, including:

• AML/CFT Program Implementation
  Covered Advisers must implement written AML/CFT programs approved by their governing bodies. These programs must include policies, independent testing, designated officers, staff training, and risk-based customer due diligence procedures.
  
  

• Reporting Obligations
  Covered Advisers must file SARs for transactions involving $5,000 or more if suspicious activity is detected and submit CTRs for transactions exceeding $10,000 in currency.
  
  

• Recordkeeping and Travel Rule
  Advisers are required to maintain detailed records and pass originator and beneficiary information for certain transactions over $3,000.

Practical Guidance for Firms

To align with the Final Rule, Covered Advisers should take the following steps:

1. Review and Update AML/CFT Programs: Evaluate existing programs and revise policies, procedures, and controls to meet new requirements.
   
   

2. Designate Qualified Personnel: Appoint an experienced AML/CFT compliance officer and involve governing bodies in program oversight.
   
   

3. Prepare for Reporting Obligations: Develop procedures for filing SARs and CTRs and ensure staff are trained to identify and report suspicious activity.
   
   

4. Engage Third-Party Providers: Review contracts with service providers to incorporate any delegated responsibilities under the Final Rule.

InnReg assists investment advisers in developing and enhancing AML/CFT programs to meet regulatory expectations. Our team provides tailored support in program design, compliance reviews, and training to help firms navigate these changes effectively.