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FinCEN Anti-Money Laundering/Countering the Financing of Terrorism Program Proposal

Updated: Jun 6

After more than 20 years and multiple iterations (proposals in 2015 and 2003 which were subsequently withdrawn), on February 15, 2024, the US Department of the Treasury’s (Treasury) Financial Crimes Enforcement Network (FinCEN) published a notice of proposed rulemaking (Proposal) that would subject investment advisers to anti-money laundering/countering the financing of terrorism (AML) program and related reporting requirements, including suspicious activity reports (SARs).

The proposal would apply to ALL investment advisers registered (RIAs) with the US Securities and Exchange Commission (SEC) as well as exempt-reporting advisers (ERAs).Hereinafter, RIA and ERAs are collectively referred to as “Advisers”). If adopted, the Proposal would require Advisers to develop and implement a written, risk-based AML program that is reasonably designed both to prevent the adviser from being used for money laundering,bterrorist financing, or illicit financing activities; monitor and achieve compliance with the applicable provisions of the Bank Secrecy Act (BSA) and related implementing regulations from the Treasury; include Advisers within the meaning of “financial institutions” for purposes of the BSA’s implementing regulations and impose on such advisers specific FinCEN reporting requirements; require Advisers to monitor for suspicious activity and to file SARs with FinCEN accordingly; delegate examination authority to the SEC, and require compliance within 12 months after the adoption of the final rules.

Significantly, the proposal describes two obligations that FinCEN is not imposing on Advisers. FinCEN is not proposing to include a customer identification program (CIP) requirement, nor is it proposing to include within the AML program requirements an obligation to collect beneficial ownership information for legal entity customers.

FinCEN noted, it anticipates addressing CIP via a future joint rulemaking with the SEC and addressing the requirement to collect beneficial ownership information for legal entity customers under the customer due diligence (CDD) rule in subsequent rulemakings. The proposal was submitted to the Office of Management and Budget’s Office of Information and Regulatory Affairs review on April 5, 2024, and the industry can expect the proposal to be issued later in July 2024.

Compliance4 believes that it is prudent for Advisers to develop a CIP and CDD procedures even if these procedures are not yet required. Many investment advisers may already have Know Your Customer (KYC) programs meeting the CIP/CDD rule standards, particularly where custodian/broker-dealers typically flow those requirements over to the Adviser. For those Advisers that do not have a KYC program, Compliance4 believes it advisable that Advisers adopt a KYC program that is similar to the requirements contained in FinCEN’s CIP/CDD rules for other financial institutions to avoid potentially being viewed as not having appropriate risk-based controls.

The Proposal would require Advisers to comply with the BSA regulatory requirements that are generally applicable to financial institutions, including being required to: file Currency Transaction Reports (CTRs) in the case of a receipt of $10,000 or more of currency rather than the joint FinCEN/Internal Revenue Service Form 8300; report suspicious transactions by submitting Suspicious Activity Reports (SARs); comply with §314(a) of the USA PATRIOT Act, which enables special information-sharing procedures between and among FinCEN, law enforcement government agencies,

and certain financial institutions; and comply with the recordkeeping requirements including the maintenance of transmittal order or client instructions with money movements.

Compliance4 supports the Proposal that the SEC will be responsible for examining the Advisers AML programs and for enforcement activities as the SEC has extensive experience in AML matters. The SEC Division of Examinations noted in its 2024 Priorities Letter that it will review the broker-dealer and investment company AML programs for being (i) appropriately tailored to their business model and associated AML risks; (ii) having conducted independent testing; (iii)established an adequate CIP, and (iv) were meeting their SAR filing obligations. These areas of focus align closely to the 2023 Risk Alert observations from AML compliance examinations of broker-dealers.


As mentioned in the Proposal, the AML requirement is not “one-size-fits-all.” Rather, it is risk- based and intended to give each Adviser the flexibility to design a tailored program that identifies and mitigates the risks specific to its advisory services and its investors. With that in mind, Compliance4 urges FinCEN to consider the IAA recommendations made in its comment letter dated April 15, 2024.

Compliance4 agrees, in large part, with the IAA comments and that FinCEN reconsider the scope of its proposal. The BSA does not need to be extended to all Advisers with respect to all of their activities in order to have a comprehensive AML regime in the United States. The IAA believes (as does Compliance4) that excluding certain clients and activities from the Proposal would strengthen the Advisers’ AML programs by allowing them to use their finite resources to address higher-risk activities and would avoid situations where imposing AML on Advisers would be duplicative of regulatory efforts where the costs and operational challenges of compliance will significantly outweigh the marginal benefits.


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