Bank Secrecy Act Expansion to Registered Investment Advisors

Financial Crimes Enforcement Network: Anti-Money Laundering/Countering the Financing of Terrorism Program and Suspicious Activity Report Filing Requirements for Registered Investment Advisers and Exempt Reporting Advisers

On August 28, 2024, FinCEN issued a final rule regarding the expansion of the BSA’s definition of “Financial Institution” to include Registered Investment Advisors (https://www.federalregister.gov/public-inspection/2024-19260/anti-money-launderingcountering-the-financing-of-terrorism-program-and-suspicious-activity-report);

Overview

This rule aims to help address the illicit finance risks in the investment adviser sector in the United States, which the U.S. Department of the Treasury documented in a February 2024 risk assessment (https://home.treasury.gov/system/files/136/US-Sectoral-Illicit-Finance-Risk-Assessment-Investment-Advisers.pdf).

Who is Covered Under This Rule

The final rule adds “investment adviser” to the definition of “financial institution” under the BSA’s implementing regulations, and, with certain exclusions noted below, defines investment advisers as:

Investment advisers registered with or required to register with the SEC, also known as registered investment advisers (RIAs), and
Investment advisers generally must register with the SEC if they have over $110 million in assets under management (AUM).
Investment advisers that report information to the SEC as exempt reporting advisers (ERAs).
ERAs are investment advisers that (1) advise only private funds and have less than $150 million in AUM in the United States or (2) advise only venture capital funds. ERAs are exempt from SEC registration but pursuant to existing SEC regulations must still file certain information with the SEC.

Requirements of the Final Rule:

The rule specifically 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.

In addition, the final rule adopts the SAR filing requirements largely as proposed 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;

Benefits of This Rule

This final rule aims to help safeguard investments in the United States and help prevent criminals and other illicit actors from laundering money through the U.S. financial system. By addressing these illicit finance risks, this rule will help level the regulatory playing field through a consistent application of risk-based AML/CFT requirements.