FinCEN Finalizes AML Rule for SEC Registrants and Exempt Reporting Advisers

August 29, 2024

What Happened?

On August 28, 2024, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) finalized the AML rule. The final rule has a few changes from the proposed rule announced in February (see our prior coverage). The final rule extends the definition of “financial institutions” under the Bank Secrecy Act (BSA) to include most Registered Investment Advisers (RIAs) and Exempt Reporting Advisers (ERAs). In a change from the proposal, FinCEN excluded RIAs that register with the SEC solely because they are (i) mid-sized advisers, (ii) multi-state advisers, or (iii) pension consultants; as well as RIAs that are not required to report any AUM to the SEC on Form ADV. The BSA prescribes minimum standards for anti-money laundering and countering the financing of terrorism (AML/CFT) programs, and FinCEN’s stated goal is to help safeguard the investment adviser sector from illicit financial activity (see the press release and fact sheet for more).

The final 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.

Lastly, FinCEN has delegated examination authority under the rule to the SEC. Meaning BSA compliance could be part of regular SEC examinations. The stated compliance deadline for all of these requirements is January 1, 2026.

What Does This Mean for Me?

The best part of this final rule is the extended compliance deadline of January 1, 2026. This extra time gives advisers time to prepare and also allows for likely legal challenges to inform compliance decisions. The U.S. Supreme Court’s recently overruled Chevron deference, which now gives courts the power to interpret statutes without deferring to federal agency interpretations. This final rule is expected to be the target of litigation challenging FinCEN’s interpretation of the AML Act. Given the amount advisers will have to invest in a compliant AML/CFT program, we expect all eyes to turn to the courts to see if these requirements are softened or thrown out. FinCEN said the final rule made changes based on the industry and public comments received. Now we will see if those adjustments are enough to survive a legal challenge.

Keep in mind, this rule does not include the joint FinCEN SEC proposal from June that would create customer identification program requirements. We have yet to see that rule finalized.

For any adviser, it is a best practice to have some AML policies and procedures in place. Likewise, no adviser wants to inadvertently aid the financing of terrorism. We will continue to monitor these recent developments, if you would like to speak with a regulatory expert, please let us know.