FinCEN Announces Final AML Program and SAR Filing Requirements for Investment Advisers

On August 28, 2024, the Financial Crimes Enforcement Network (FinCEN) issued a final rule to help safeguard investment advisers from illicit financial activity. The final rule adds registered investment advisers (RIAs) and exempt reporting advisers (ERAs) to the definition of financial institutions under the Bank Secrecy Act (BSA), setting minimum standards for anti-money laundering and countering the financing of terrorism (AML/CFT) programs.
 

The final rule authorizes the Securities and Exchange Commission (the “SEC”) to examine covered investment advisers’ compliance. The compliance date is January 1, 2026.

How Does the Final Rule Impact Advisers?
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The final rule will impact most RIAs and ERAs with a few exceptions: 

• RIAs that register with the SEC because they are:
  • Mid-sized advisers (e.g., $25 - $100mm in AUM),
  • Multi-state advisers, or
  • Pension consultants.
• RIAs that are not required to report any AUM to the SEC on Form ADV.

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The main impact of the final rule for covered RIAs and ERAs is the creation of an additional layer of requirements and costs for bringing in new investors. The final rule requires these institutions to:

• Implement a risk-based and reasonably designed AML/CFT program, which must designate an AML/CFT officer and include ongoing training for appropriate persons;
• 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);
• Fulfill certain other obligations applicable to financial institutions subject to the BSA and FinCEN’s implementing regulations, such as special information-sharing procedures; and
• Perform independent testing of the AML program by a person who is not involved in the operation and oversight of the AML/CFT program (i.e., a qualified person within the firm or a third-party).

What Investment Advisers Can Do Now to Prepare
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Compliance with the final rule requires covered RIAs and ERAs to review their existing AML/CFT programs to identify areas that need to be updated to comply with the new regulations. It is expected that many, if not most, RIAs and ERAs will need to modify their existing AML/CFT programs to be in compliance. Once deficiencies are identified, the RIA or ERA should make appropriate plans to come into compliance by the end of 2025. As with most rule changes, Petra recommends that firms target compliance at least a quarter before the deadline, to ensure time to deal with any complications that arise. 

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It should be noted that FinCEN will permit an investment adviser to delegate contractually the implementation and operation of some or all aspects of its AML/CFT program to a third-party provider, including a fund administrator. However, the investment adviser will remain fully responsible and legally liable for and be required to demonstrate to examiners the program’s compliance with AML/CFT requirements and FinCEN's regulations.

How Petra Can Help

Petra Funds Group’s compliance team has decades of experience managing SEC regulatory compliance programs for private fund advisers, as well as programs for AML/KYC compliance. The group’s expertise enables them to provide insight and guidance on a wide range of regulatory compliance services, from investment adviser registration to ongoing compliance support to performing SEC mock examinations. Learn more about Petra’s comprehensive compliance offering here and contact Jesse Brown with questions.

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