April 12, 2024Client Alert

FinCEN Proposes AML Rules for RIAs and Exempt Reporting Advisers

For many years, key U.S. anti-money laundering (“AML”) and countering the financing of terrorism (“CFT”) rules have applied to financial institutions, other than investment advisers. On February 13, 2024, the Financial Crimes Enforcement Network (“FinCEN”) issued a proposal (the “Proposed Rule”) that would bring investment advisers within the scope of those rules.

If finalized, the rule would drastically increase the compliance obligations and burdens of registered investment advisers and exempt reporting advisers. However, to date, relatively few comments have been submitted to FinCEN opposing the Proposed Rule. Although FinCEN may receive further comments before April 15th (when the comment period closes), we expect the Proposed Rule to be finalized largely as drafted, given the absence of substantial backlash against it.


FinCEN has tried (several times) to subject investment advisers and private funds to AML/CFT regulations, particularly the rules under the Bank Secrecy Act (“BSA”). These past efforts have been unsuccessful, partly because client funds and securities are typically custodied and transferred through other BSA-regulated financial institutions (in particular, banks and broker-dealers), not investment advisers.

This time, however, FinCEN has sought to build a stronger case to address the ‘regulatory gap’ in the Bank Secrecy Act rules. In particular, the Proposed Rule refers extensively to risks raised in the Treasury Department’s 2024 risk assessment of the investment adviser industry. For example, the Proposed Rule argues that the anonymity of private funds makes them appealing investments to investors with illicit proceeds. Additionally, Russian elites use private funds to obscure ownership of U.S. assets, while Chinese and other foreign state actors may use funds to access sensitive technology. FinCEN also notes that investment advisers are increasingly mentioned in suspicious action reports.

Summary of Proposed Rule

The BSA requires financial institutions to comply with a wide range of AML/CFT obligations. By expanding the definition of “financial institution” in the BSA rules, the Proposed Rule would extend many of these AML/CFT obligations to SEC-registered investment advisers and exempt reporting advisers (“Advisers”) – including private fund advisers and venture capital fund advisers.

Under the Proposed Rule, Advisers would need to comply with the following obligations:

1. Maintain an AML/CFT program.

Advisers would need to implement a risk-based AML/CFT program, approved in writing by the Adviser’s board of directors. Advisers would also need to:

  • Conduct independent testing of the AML/CFT program.
  • Designate an AML compliance officer.
  • Conduct ongoing employee AML training.
  • Implement a customer due diligence program that includes developing a customer risk profile, conducting ongoing monitoring, and maintaining current client information.
  • Consider AML/CFT risks relating to private funds in implementing the program.

2. File SARs with FinCEN

Advisers would need to file Suspicious Action Reports with FinCEN if:

  • A transaction is conducted or attempted by, at, or through the Adviser;
  • The transaction involves $5,000 in the aggregate; and
  • The Adviser knows, suspects or has reason to suspect that the transaction (i) facilitates money laundering or other criminal activity, or involves funds derived from illegal activity, (ii) is designed to evade BSA requirements, or (iii) has no business or apparent lawful purpose, and no reasonable explanation is available upon examination.

3. Comply with other generally applicable AML obligations.

Advisers would need to comply with other BSA obligations applicable to financial institutions. For example, Advisers would need to:

  • File a Currency Transaction Report for currency transactions over $10,000.
  • Retain information relating to transmittals of funds of $3,000.
  • Maintain procedures relating to suspected terrorism or money laundering.
  • Main procedures relating to correspondent accounts of foreign financial institutions and private banking accounts of non-U.S. persons.
  • Maintain procedures to share information with FinCEN, law enforcement agencies, and certain financial institutions.

Delayed Obligations

Unlike many other financial institutions, advisers would not be required to implement a Customer Identification Program, which FinCEN plans to address through future joint rulemaking with the SEC.

Additionally, FinCEN will delay requiring advisers to identify beneficial owners of legal entity clients until it revises its Customer Due Diligence Rule pursuant to its obligations under the Corporate Transparency Act. (For more information about the Corporate Transparency Act, take a look at our prior alert). 


The Proposed Rule is open for comments until April 15, 2024. If adopted, Advisers will be required to comply with the final rule before 12 months from the effective date of the final rule.

Under the Proposed Rule, FinCEN would delegate its examination authority over Advisers to the SEC. The SEC has been exercising its examination authority aggressively in recent years, and Advisers should stay well ahead of its obligations if the Proposed Rule is adopted. The Broker-Dealer & Investment Adviser team at Michael Best has attorneys that can help Advisers navigate finalized AML obligations, in addition to other compliance matters. Please contact a member of our team for more information.

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