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FinCEN Issues Proposed AML Rule for Investment Advisers

Written by: Brian M. Shea , CRCM, CAMS ,

Key Takeaways

  • FinCEN’s proposed rule extends AML obligations to investment advisers, widening the scope beyond traditional industries.
  • SEC-registered advisers and exempt reporting advisers are subject to the rule, excluding mutual fund-related activities.
  • Advisers must establish AML programs, conduct testing, report transactions, and maintain records, among other obligations.
  • Advisers have 12 months to comply once the rule is finalized, with comments accepted until April 15, 2024.

On February 13, 2024, the Financial Crimes Enforcement Network (FinCEN) announced the issuance of a proposed rule that would impose Anti-Money Laundering (AML) programs and suspicious activity reporting obligations on investment advisers. Various industries such as banks, credit unions, and broker dealers have historically been subject to rules in this area. FinCEN has determined that, based on the illicit finance and national security risks posed by the investment adviser industry, it would expand the applicability of the rules to cover such organizations. This proposed rule supersedes a previous proposed rule issued back in 2015 which was never finalized.

The rule will apply to investment advisers that are registered with the Securities and Exchange Commission (SEC) – typically an adviser with over $110 million in assets under management – and those that report to the SEC as exempt reporting advisers (ERAs). The rule will not apply to activities performed with respect to mutual funds, as said funds are already subject to AML rules.

As a result of the rule, investment advisers will have AML compliance obligations including but not limited to the following:

  • The establishment of a formal AML Program
  • Policies, procedures, and internal controls to implement the program
  • Establishing a person with appropriate authority as responsible for the program (AML officer)
  • Having independent testing performed on a periodic basis to evaluate compliance with the regulation (typically every 12 – 18 months)
  • Performing training for impacted personnel
  • Reporting on currency transactions in excess of $10,000 via the Currency Transaction Report (CTR), replacing the current Form 8300
  • Monitoring, identifying, and reporting on suspicious activity via the Suspicious Activity Report (SAR)
  • Implementing procedures to perform customer due diligence (CDD) on its customers to be able to understand the nature and purpose of their relationship and identify any potential suspicious activity
  • Participating in information sharing with law enforcement (314(a)) and where desired, other financial institutions (314(b))
  • Taking action when requested via Section 311 of the USA PATRIOT Act special measures
  • Performing additional due diligence for foreign correspondent accounts and private banking activity, if applicable
  • Maintaining records of specific types of activity and recording evidence of compliance with the regulation

Notably the proposed rule does not impose Customer Identification Program (CIP) and Beneficial Ownership (BO) rules upon investment advisers, rules that typically apply to other entities subject to AML rules. FinCEN is expected to address these via a future joint rulemaking with the SEC.

The SEC has been designated the examination authority with respect to ensuring that advisers are complying with the rule. After the rule becomes final, advisers will have 12 months following the effective date to establish their program and comply. FinCEN is accepting comments from the public on the rule until April 15, 2024.

Wolf has decades of experience assisting clients across a variety of industries with their AML compliance obligations. If you have any questions relating to the proposed rule or would like to discuss AML with us in further, please reach out to a member of Wolf’s Regulatory Compliance team.