FinCEN is finalizing its new anti-money laundering (AML) regulations, aimed at mitigating illicit finance risks within the investment adviser sector. Registered Investment Advisers (RIAs) and Exempt Reporting Advisers (ERAs) must start reviewing their frameworks now to make sure they comply with these requirements by January 1, 2026.
Key compliance obligations for RIAs and ERAs
Establish a risk-based AML / CFT program
RIAs and ERAs are required to implement a written AML and Countering the Financing of Terrorism (CFT) program that includes the following:
- Internal policies, procedures, and controls tailored to the firm’s risk profile.
- Designation of a dedicated compliance officer responsible for overseeing the AML program. This will typically be the CCO for RIA’s and the compliance lead for ERA’s.
- Ongoing employee training to ensure staff can identify and report suspicious activities, which may be included in the annual compliance training for RIA’s and a few slides for discussion points for ERA’s.
- Independent testing of the program’s effectiveness, either by internal personnel not involved in the program’s implementation or by qualified external parties.
- Risk-based procedures for conducting ongoing customer due diligence (CDD). This includes understanding the nature and purpose of customer relationships and monitoring for suspicious transactions.
Suspicious activity reporting (SAR)
Advisers are required to file SARs with FinCEN for transactions involving or aggregating at least $5,000 when they know, suspect, or have reason to suspect that the transaction:
- involves funds derived from illegal activity
- is designed to evade the Bank Secrecy Act (BSA) reporting requirements
- has no business or apparent lawful purpose
- involves the use of the adviser to facilitate criminal activity.
Recordkeeping and information-sharing
RIAs and ERAs must comply with the BSA’s Recordkeeping and Travel Rules, which require the maintenance of certain records and the inclusion of specific information with transmittals of funds. They’re also subject to information-sharing provisions under Sections 314(a) and 314(b) of the USA PATRIOT Act.
Applicability to foreign advisers
The rule applies to foreign-located investment advisers only to the extent that they:
- conduct advisory activities within the U.S
- provide advisory services to U.S. persons or to foreign funds with U.S. investors.
Delegation of AML program implementation
Advisers may delegate the implementation and operation of aspects of their AML programs to third parties, such as fund administrators. However, the adviser retains full responsibility for the program’s compliance and must ensure that FinCEN and the SEC can obtain information and records relating to the AML program. Advisers will need to ensure that any third parties comply with the firm’s written policies and procedures and follow the new requirements, including reporting, and books and records.
Exemptions and exclusions
The final rule excludes certain advisers from its scope:
- RIAs that register with the SEC solely because they are mid-sized advisers, multi-state advisers, or pension consultants.
- RIAs that aren’t required to report any assets under management to the SEC on Form ADV.
- State-registered advisers, foreign private advisers, and family offices as defined in SEC regulations.
Preparatory steps for compliance
To ensure compliance by the January 1, 2026 deadline, RIAs and ERAs should:
- conduct a comprehensive risk assessment to tailor their AML / CFT programs appropriately
- develop and document internal policies and procedures reflecting the firm’s specific risk profile
- appoint a qualified compliance officer to oversee AML efforts
- implement ongoing training programs for relevant personnel
- arrange for independent testing of the AML program’s effectiveness, which can be done by compliance consultants, law firms, or other independent service providers
- establish procedures for customer due diligence and suspicious activity monitoring.
Early and thorough preparation will be essential to meet FinCEN’s standards, especially since the rule requires programs tailored to specific risk profiles.
How can Bovill Newgate help you meet FinCEN’s new AML requirements?
Our specialist team can help make sure your AML controls are robust enough to manage your financial crime risks actively and efficiently.
We can help to craft policies and procedures to be included in your compliance manual, create and conduct the employee training, and be your independent AML program auditor.
We regularly support our clients in:
- assessing AML risk
- conducting health checks
- ensuring your governance is fit for purpose
- getting your policies right
- training your people to understand risks
- preparing for regulatory visits.
Get in touch if you need support with a specific area of AML compliance or ongoing support of your existing systems.
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