Anti-Money Laundering Program and Suspicious Activity Report Filing Requirements

 

Adopted Rule: Anti-Money Laundering Program and Suspicious Activity Report Filing Requirements for Registered Investment Advisers and Exempt Reporting Advisers

Contributed By: Gabrielle Magdziarz

                           Senior Compliance Consultant

                             AdvisorAssist, LLC

Effective September 4, 2024, the Financial Crimes Enforcement Network’s (FinCEN) has officially adopted and published its new rules on Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) programs strictly for investment advisors registered with the U.S. Securities and Exchange Commission (“SEC”), and does not apply to investment advisors registered with state regulatory agencies.

The Compliance Deadline is January 1, 2026 

AdvisorAssist has begun to review  the rule's release and will continue to provide guidance, as applicable, on the key aspects necessary for compliance with this regulation over the course of the “Compliance Period” that ends in January 2026.

Important Items to Note:

• Implement a risk-based and reasonably designed AML/CFT program. This includes, but is not limited to:
• establishing policies and procedures designed to prevent firms from being used for money laundering, terrorist financing, or other illicit finance activities;
• appointing an AML Officer;
• performing independent compliance testing;
• developing and implement a training program; and
• performing ongoing client due diligence to develop client risk profiles and identify/report suspicious transactions.
• File certain reports, such as Suspicious Activity Reports (SARs), with FinCEN.
• Keep records such as those relating to the transmittal of funds (i.e., comply with the Recordkeeping and Travel Rule)

Important Information for State Registered Investment Advisors!

Given that FinCEN currently exempts state registered investment advisors, compliance to similar AML regulations may be required in the future. AdvisorAssist will continue to monitor each state’s rule making and will continue to keep respective firms apprised.

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Initial Proposal - March 2024

On varying occasions, the Financial Crimes Enforcement Network (FinCEN) has submitted rule proposals regarding the need for Registered Investment Advisors (RIAs) and Exempt Reporting Advisors (ERAs) to be subject to comprehensive anti-money laundering and countering the financing of terrorism (AML/CFT) measures. FinCEN’s recent synopsis is driven by the 2024 Investment Adviser Risk Assessment, which identified several illicit finance and national security risks such as sanctioned individuals, corrupt officials, tax evaders, and other criminal actors using RIAs to gain access to US Markets. Furthermore, the risk assessment identified cases of foreign adversaries, including China and Russia, investing in early-stage companies through RIAs to access sensitive information and emerging technology. The proposal would include RIAs and ERAs in the definition of “financial institution” under The Bank Secrecy Act (BSA). Under the BSA, RIAs and ERAs would be required to:

• implement an AML/CFT program;
• file certain reports, such as Suspicious Activity Reports (SARs), with FinCEN;
• keep records such as those relating to the transmittal of funds (i.e., comply with the Recordkeeping and Travel Rule); and
• fulfill other obligations applicable to financial institutions subject to the BSA and FinCEN’s implementing regulations.

Furthermore, the proposal would grant information-sharing provisions between and among FinCEN, law enforcement government agencies, and certain financial institutions to RIAs, along with subjecting RIAs to the “special measures” imposed by FinCEN pursuant to Section 311 of the USA PATRIOT Act. Nuances to this proposal to highlight are the following:

• The proposal will not include the requirement to have a customer identification program that aligns with BSA requirements, nor beneficial ownership requirements for legal entity customers via the Customer Due Diligence rule. It is expected both these requirements will come with joint SEC rule proposals down the line.
• The proposal will not require RIAs to apply AML/CFT program or SAR filing requirements to mutual funds they advise, as mutual funds are already defined as “financial institutions” under the BSA.
• Finally, FinCEN will be delegating examination authority to the SEC for compliance with the BSA and FinCEN’s implementing regulations.

At this time, no action is required for RIAs or ERAs. The proposal will remain in a comment period through April 15, 2024. Should the rule become effective, compliance will be required on or before 12 months from the final rule’s effective date.

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