FinCEN's new anti-money laundering (AML) rule for investment advisers imposes AML obligations on both registered investment advisers (RIAs) and exempt reporting advisers (ERAs) and represents a significant development for global investment managers. For the first time, RIAs and ERAs will be required by law to establish robust AML programs, including procedures for filing suspicious activity reports (SARs). Under the new rule, the SEC will have oversight responsibility for AML compliance, and RIAs and ERAs can expect increased scrutiny from both the SEC and FinCEN with respect to AML. The compliance date for the new rule is January 1, 2026. Global investment managers should mobilize now, review existing AML policies and procedures, and prepare to implement changes triggered by this new AML rule.
Overview: AML Program Rule Requirements for Investment Advisers
On August 28, 2024, the Financial Crimes Enforcement Network ("FinCEN") issued a Final Rule1 (the "AML Rule") that imposes anti-money laundering ("AML") obligations on both registered investment advisers ("RIAs") and exempt reporting advisers ("ERAs," and together with RIAs, "Advisers") by adding the term "investment adviser" to the definition of "financial institution" under FinCEN's implementing regulation of the Bank Secrecy Act ("BSA"). Certain RIAs that register with the Securities and Exchange Commission ("SEC") because they are (i) mid-sized advisers, (ii) multi-state advisers, (iii) pension consultants, and (iv) RIAs that do not report any assets under management on Form ADV are exempt from the definition of "financial institution" under the AML Rule. In addition, state registered advisers, foreign private advisers that are not registered with the SEC, and family offices are excluded from the scope of the AML Rule's definition of "investment adviser."
Importantly, foreign-located investment advisers, whose principal office and place of business is outside the United States, that are RIAs or ERAs, are covered under the AML Rule. However, in a key change from the proposed rule, for foreign-located investment advisers, the AML Rule's obligations will apply only with respect to their advisory activities that take place within the United States, including through the foreign-located investment adviser's U.S. personnel or through the involvement of an agency, branch, or office within the U.S. In addition, the AML Rule's requirements will apply to foreign-located investment advisers that provide advisory services to a U.S. person or to foreign-located private funds that have an investor that is a U.S. person.
Although the AML Rule applies to Advisers that are dually registered as broker-dealers, banks, or Advisers operating as subsidiaries of banks, dually registered Advisers are not required to create separate AML programs for each entity. Instead, Advisers can opt to extend a single, comprehensive AML program to all their affiliated financial institutions, including their advisory businesses, providing some flexibility for firms with complex...
