On Wednesday, August 28, 2024, the Financial Crimes Enforcement Network (FinCEN) issued a final rule to help investment advisers safeguard from illicit finance activity, including misuse by criminals, foreign adversaries, and other money laundering and terrorist financing threats.
This final rule adds certain registered investment advisers and exempt reporting advisers to the definition of “financial institution” under the regulations that implement the Bank Secrecy Act (BSA).
The final rule adds “investment adviser” to the definition of “financial institution” under the BSA and defines investment advisers as:
•investment advisers registered with or required to register with the SEC (RIAs), and
•investment advisers that report information to the SEC as exempt reporting advisers (ERAs).
The final rule excludes from the definition: (a) 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 (b) RIAs that are not required to report any AUM to the SEC on Form ADV. More importantly, the final rule does not apply to state-registered advisers or to foreign private advisers or family offices as defined in SEC regulations.
The final rule prescribes minimum standards for anti-money laundering and countering the financing of terrorism (AML/CFT) programs to be established by such RIAs and ERAs, requires RIAs and ERAs to report suspicious activity to FinCEN, and makes other related changes to FinCEN’s regulations that implement the BSA.
The 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.
The final rule adopts the SAR filing requirements and does not exempt investment advisers from the requirements to file Currency Transaction Reports (CTRs) or adhere to the Recordkeeping and Travel Rules. Moreover, the final rule applies to investment advisers the information sharing provisions of Sections 314(a) and 314(b) of the USA PATRIOT Act.
FinCEN is delegating its examination authority for the requirements of this rule to the SEC,
FinCEN is extending the date for compliance with the requirements of this rule to January 1, 2026.
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