A Cautionary Tale: A Lesson Regarding Upcoming AML Regulation Adherence
Anti-Money Laundering requirements are coming down the pipeline for Registered Investment Advisors (RIAs) in 2026, and although these regulations have existed for other counterparts of the financial services industry for years, RIA requirements were simplistic in comparison. As the RIA industry endeavors to adopt policies and procedures to comply with the upcoming AML/CFTC regulations, we remind Advisors to be mindful about marketing or inferring compliance when only adopting partial compliance, or none at all. As a reminder, you can review the AdvisorAssist Blog to learn more about these impending requirements:
“This case reinforces the fundamental duty of investment advisers to say what they do and do what they say,” said Tejal D. Shah, Associate Regional Director of the SEC’s New York Regional Office. “
In January 2025, the SEC released enforcement action against an RIA for misrepresentations related to its AML procedures and for compliance failures resulting in the payment of a $150,000 civil penalty for willfully violating the Investment Advisers Act of 1940 and related rules. From at least October 2018 until January 2022, the RIA stated in offering and other documents provided to prospective and existing private fund investors that the firm was voluntarily complying with AML due diligence laws, despite those laws not applying to investment advisers, including by conducting specific types of AML due diligence on prospective investors and conducting ongoing AML due diligence monitoring on existing investors. The RIA in fact, did not always conduct the AML due diligence as described, including with respect to an entity owned by an individual publicly reported to have suspected connections to money laundering activities.
This incident was communicated by the Enforcement Division only days before the SEC released charges against LPL Financial with anti-money laundering violations for long-standing failures in its customer identification program, and restricting high-risk accounts (cannabis-related and foreign accounts) which were prohibited under LPL’s AML policies. This is not the first Custodian to encounter such a fine as we consider the activity of Merrill Lynch or Raymond James. It is imperative that RIAs consider these findings as components of their ongoing vendor due diligence, and reliance for AML/CFTC obligations. Additionally, if your policies and procedures outline your process of complying with AML laws, make sure you have documentation to support your assertions.
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