On August 28, 2024, the Financial Crimes Enforcement Network (FinCEN) issued a final rule aimed at combating illicit finance and addressing national security threats in the investment adviser sector.
Key Elements of the AML/CFT Rule
Expansion of the “Financial Institution” Definition
Investment advisers, including both registered and exempt reporting advisers, are now classified as financial institutions under the Bank Secrecy Act.
The final rule responds to comments on the NPRM by adopting a narrower definition of “investment adviser” than initially proposed and excludes from the definition:
(A) RIAs that register with the SEC solely because they are:
- (i) mid-sized advisers,
- (ii) multi-state advisers, or
- (iii) pension consultants; as well as
(B) RIAs that are not required to report any AUM to the SEC on Form ADV.
AML/CFT Compliance Programs
Investment advisers must implement anti-money laundering and countering the financing of terrorism programs to detect and report suspicious activities.
The final rule does not include program amendments directed by Section 6101(b) of the Anti-Money Laundering Act of 2020 (AML Act) that were proposed in the AML/CFT Program NPRM, announced on June 28, 2024, and published in the Federal Register on July 3, 2024.
Reporting Obligations
Investment advisers are required to file suspicious activity reports with FinCEN.
Consultations and Considerations
The rule reflects FinCEN’s careful consideration of comments received in response to its February 15, 2024, Notice of Proposed Rulemaking (NPRM). It also includes extensive consultations with staff at the Securities and Exchange Commission (SEC), other U.S. government agencies, industry representatives, and incorporates feedback from public comments by altering the scope and requirements of the rule.
Risk Mitigation and National Security
The rule addresses risks identified in a Treasury Department assessment, highlighting how criminals and foreign adversaries exploit the sector. The final rule includes several exclusions aimed at minimizing the burden of duplicating existing AML/CFT measures while pursuing transparency initiatives to safeguard the U.S. financial system and national security. The rule also aligns with international AML/CFT standards, providing valuable information to law enforcement and national security agencies.
Requirements of the Final Rule requires RIAs and ERAs to:
- Implement a risk-based and reasonably designed AML/CFT program;
- File reports, such as Suspicious Activity Reports (SARs), with FinCEN;
- Maintain certain records, including those relating to the transmittal of funds, in compliance with the Recordkeeping and Travel Rules; and
- Fulfill other obligations applicable to financial institutions subject to the Bank Secrecy Act and FinCEN’s implementing regulations, such as special information-sharing procedures.
Takeaways
FinCEN has extended the compliance date for this rule to January 1, 2026, beyond the date proposed in the NPRM.
The issuance of this final rule marks a significant step in strengthening the regulatory framework governing the investment adviser sector. By closing critical loopholes and enhancing transparency, FinCEN aims to protect the U.S. financial system from illicit finance.
For more detailed information, refer to the official FinCEN announcement and fact sheet.
Author: Sarah McMekin, CPA | [email protected]
Contact Us
If you have any questions regarding implementation, please reach out to Withum’s Financial Services Team.
