FinCEN Final Rule: What It Means for Registered Investment Advisers

FinCEN Final Rule: What It Means for Registered Investment Advisers

Introduction

On August 28, 2024, the Financial Crimes Enforcement Network (FinCEN) issued a sweeping final rule that significantly reshapes how Registered Investment Advisers (RIAs) and Exempt Reporting Advisers (ERAs) approach anti-money laundering (AML) compliance. This long-anticipated move brings investment advisers into closer alignment with existing AML regulations governing banks, broker-dealers, and mutual funds—and marks a pivotal shift in the regulatory landscape.

Why the Rule Was Issued

The investment adviser sector has long been viewed as a regulatory blind spot in the U.S. financial system. In its February 2024 risk assessment, the U.S. Department of the Treasury found multiple instances of:- Sanctioned persons and corrupt officials using advisers to access U.S. capital.- Foreign adversaries (notably China and Russia) investing in early-stage U.S. tech through adviser-managed funds.- Fraudsters and money launderers exploiting gaps in oversight.FinCEN’s new rule aims to address these vulnerabilities, align with international AML standards, and advance the Biden Administration’s U.S. Strategy on Countering Corruption.

Who Is Covered by the Rule?

The rule defines “investment advisers” as financial institutions under the Bank Secrecy Act (BSA).

Included:

• SEC-registered investment advisers (RIAs)

• Exempt Reporting Advisers (ERAs) who file with the SEC but are exempt from registration

Excluded:

• State-registered advisers

• Foreign private advisers

• Family offices

• Certain RIAs registered solely as mid-sized, multi-state, or pension consultants

• RIAs not reporting assets under management (AUM)

For foreign-located advisers, the rule applies only to their U.S.-based activities or services offered to U.S. persons.

What Are the Key Requirements?

Under the final rule, covered investment advisers must:

1. Implement an AML/CFT Program

   1. Risk-based and reasonably designed

   2. Tailored to the size and complexity of the adviser’s business

2. File Suspicious Activity Reports (SARs)

   1. For suspected fraud, money laundering, terrorist financing, or other illicit activity

   2. Within 30 days of detection

3. Maintain Records & Adhere to Travel Rules

   1. Includes records of fund transmissions and client identity

   2. Subject to the Recordkeeping and Travel Rule requirements

4. Participate in Information Sharing

   1. Under Sections 314(a) and 314(b) of the USA PATRIOT Act

Compliance Deadline

January 1, 2026 is the official deadline for compliance.

Examination and Enforcement

FinCEN has delegated examination authority to the SEC, which already oversees RIAs.

Why This Matters

This rule:- Levels the regulatory playing field across the financial sector- Reduces the risk of 'AML arbitrage'- Provides law enforcement with critical financial intelligence- Helps the U.S. meet international AML/CFT standards under FATF

What Should Investment Advisers Do Now?

1. Review the Final Rule

   1. Understand whether your firm is covered

2. Design or Update Your AML Program

   1. Include client due diligence, OFAC screening, SARs, training, etc.

3. Train Your Team

   1. Ensure all relevant staff understand red flags and responsibilities

4. Engage Experts

   1. Consider third-party vendors for compliance implementation

Final Thoughts

This is not just another regulatory obligation—it's a paradigm shift. Investment advisers now have a critical role to play in national security, market integrity, and the prevention of financial crime.

📩 Need help getting started with your AML compliance program? Contact us to schedule a consultation.

📄 Want a downloadable summary of the FinCEN Final Rule? Let us know—we’re happy to provide one.