On August 28, 2024, the Financial Crimes Enforcement Network (FinCEN) issued a final rule to protect the U.S. financial system from illicit activity in the investment adviser sector. This rule targets criminals, foreign adversaries, and others attempting to exploit investment advisers to launder money or finance terrorism.
The rule requires certain registered investment advisers (RIAs) and exempt reporting advisers (ERAs) to comply with the Bank Secrecy Act (BSA). These advisers must establish anti-money laundering (AML) and countering the financing of terrorism (CFT) programs, report suspicious activity, and maintain detailed records. This will help prevent criminals from using investment advisers to funnel illegal funds into the U.S. financial system. The final rule does not apply to State-registered advisers or to foreign private advisers or family offices (each as defined in SEC regulations).
ERAs are investment advisers that:
- Advise only private funds and have less than $150 million in AUM in the United States or
- Advise only venture capital funds.
Although ERAs are exempt from registration with the SEC, they must still file particular information by filing a truncated Form ADV.
RIAs or ERAs that have a principal office and place of business outside the United States must adhere to the rule’s requirements as they apply to their advisory activities that:
- Take place within the United States, including through the involvement of U.S. personnel of the investment adviser or
- Provide advisory services to a U.S. person or a foreign-located private fund with an investor that is a U.S. person.
The rule requires RIAs and ERAs to:
- Implement a risk-based and reasonably designed AML/CFT program;
- File certain reports, such as Suspicious Activity Reports (SARs), with FinCen;
- Keep certain records, such as those relating to the transmittal of funds (i.e., comply with the Recordkeeping and Travel Rules); and
- Fulfill certain other obligations applicable to financial institutions subject to the BSA and FinCEN’s implementing regulations, such as special information sharing procedures.
FinCEN’s decision to introduce this rule follows a February 2024 Treasury report highlighting the risks posed by foreign actors, including individuals from China and Russia, who leverage investment advisers to access sensitive U.S. technologies and services. The rule was shaped by extensive feedback from industry representatives and regulators, such as the Securities and Exchange Commission (SEC), to ensure it balances national security concerns with the industry’s needs.
By extending AML/CFT obligations to investment advisers, the rule strengthens financial transparency and integrity, while aligning the U.S. with international standards. Investment advisers must comply with this rule by January 1, 2026.