The Financial Crimes Enforcement Network (FinCEN) has issued a transformative final rule that brings investment advisers and fund managers under the Bank Secrecy Act (BSA) framework for the first time. Taking effect January 1, 2026, this regulation represents a paradigm shift in how investment advisers must approach anti-money laundering (AML) and countering the financing of terrorism (CFT) compliance. This is also the opportunity to harmonize the regulations with the European AML Directive.
But what does this mean for you and your firm? Let's dive in and explore this new frontier together.
Risk Landscape
Risk Landscape
Risk Landscape
Risk Landscape
The investment advisory sector has been vulnerable to some pretty sneaky characters. From foreign corruption to sophisticated fraud schemes, illicit actors have been eyeing the industry as their golden ticket into the U.S. financial system.
Treasury review identified more than 20 private fund advisers with significant ties to Russian oligarch investors or Russian-linked illicit activities, with the majority advising venture capital funds. (Source)
The investment advisory sector has been vulnerable to some pretty sneaky characters. From foreign corruption to sophisticated fraud schemes, illicit actors have been eyeing the industry as their golden ticket into the U.S. financial system.
Treasury review identified more than 20 private fund advisers with significant ties to Russian oligarch investors or Russian-linked illicit activities, with the majority advising venture capital funds. (Source)
The investment advisory sector has been vulnerable to some pretty sneaky characters. From foreign corruption to sophisticated fraud schemes, illicit actors have been eyeing the industry as their golden ticket into the U.S. financial system.
Treasury review identified more than 20 private fund advisers with significant ties to Russian oligarch investors or Russian-linked illicit activities, with the majority advising venture capital funds. (Source)
The investment advisory sector has been vulnerable to some pretty sneaky characters. From foreign corruption to sophisticated fraud schemes, illicit actors have been eyeing the industry as their golden ticket into the U.S. financial system.
Treasury review identified more than 20 private fund advisers with significant ties to Russian oligarch investors or Russian-linked illicit activities, with the majority advising venture capital funds. (Source)
Current Challenges in the system
Current Challenges in the system
Current Challenges in the system
Current Challenges in the system
Foreign Proceeds and Market Entry
Investment advisers often unknowingly serve as entry points for illicit foreign proceeds into the U.S. financial system.
These proceeds typically originate from foreign corruption, sophisticated fraud schemes, and tax evasion
Investment advisers' unique position makes them particularly vulnerable to exploitation, as they are often the initial point of contact for foreign capital entering U.S. markets
Structural Challenges
Multiple layers of legal entities complicate due diligence
Offshore structures obscure beneficial ownership
Varying regulatory standards across jurisdictions create gaps in oversight
Information Sharing Limitations
Investment advisers are currently prevented from participating in key information sharing programs, limiting access to critical data on suspected illicit finance activity.
Foreign Proceeds and Market Entry
Investment advisers often unknowingly serve as entry points for illicit foreign proceeds into the U.S. financial system.
These proceeds typically originate from foreign corruption, sophisticated fraud schemes, and tax evasion
Investment advisers' unique position makes them particularly vulnerable to exploitation, as they are often the initial point of contact for foreign capital entering U.S. markets
Structural Challenges
Multiple layers of legal entities complicate due diligence
Offshore structures obscure beneficial ownership
Varying regulatory standards across jurisdictions create gaps in oversight
Information Sharing Limitations
Investment advisers are currently prevented from participating in key information sharing programs, limiting access to critical data on suspected illicit finance activity.
Foreign Proceeds and Market Entry
Investment advisers often unknowingly serve as entry points for illicit foreign proceeds into the U.S. financial system.
These proceeds typically originate from foreign corruption, sophisticated fraud schemes, and tax evasion
Investment advisers' unique position makes them particularly vulnerable to exploitation, as they are often the initial point of contact for foreign capital entering U.S. markets
Structural Challenges
Multiple layers of legal entities complicate due diligence
Offshore structures obscure beneficial ownership
Varying regulatory standards across jurisdictions create gaps in oversight
Information Sharing Limitations
Investment advisers are currently prevented from participating in key information sharing programs, limiting access to critical data on suspected illicit finance activity.
Foreign Proceeds and Market Entry
Investment advisers often unknowingly serve as entry points for illicit foreign proceeds into the U.S. financial system.
These proceeds typically originate from foreign corruption, sophisticated fraud schemes, and tax evasion
Investment advisers' unique position makes them particularly vulnerable to exploitation, as they are often the initial point of contact for foreign capital entering U.S. markets
Structural Challenges
Multiple layers of legal entities complicate due diligence
Offshore structures obscure beneficial ownership
Varying regulatory standards across jurisdictions create gaps in oversight
Information Sharing Limitations
Investment advisers are currently prevented from participating in key information sharing programs, limiting access to critical data on suspected illicit finance activity.
Core requirements
Core requirements
Core requirements
Core requirements
Scope of Application
The rule applies to:
SEC-registered investment advisers (RIAs)
Exempt reporting advisers (ERAs)
Notable exclusions:
RIAs registered solely as mid-sized advisers, multi-state advisers, or pension consultants
RIAs reporting no assets under management (AUM) on Form ADV
State-registered advisers
Foreign private advisers
Family offices
For foreign-located investment advisers, the rule applies only to:
Activities within the United States
Services provided to U.S. persons or foreign-located private funds with U.S. investors
Scope of Application
The rule applies to:
SEC-registered investment advisers (RIAs)
Exempt reporting advisers (ERAs)
Notable exclusions:
RIAs registered solely as mid-sized advisers, multi-state advisers, or pension consultants
RIAs reporting no assets under management (AUM) on Form ADV
State-registered advisers
Foreign private advisers
Family offices
For foreign-located investment advisers, the rule applies only to:
Activities within the United States
Services provided to U.S. persons or foreign-located private funds with U.S. investors
Scope of Application
The rule applies to:
SEC-registered investment advisers (RIAs)
Exempt reporting advisers (ERAs)
Notable exclusions:
RIAs registered solely as mid-sized advisers, multi-state advisers, or pension consultants
RIAs reporting no assets under management (AUM) on Form ADV
State-registered advisers
Foreign private advisers
Family offices
For foreign-located investment advisers, the rule applies only to:
Activities within the United States
Services provided to U.S. persons or foreign-located private funds with U.S. investors
Scope of Application
The rule applies to:
SEC-registered investment advisers (RIAs)
Exempt reporting advisers (ERAs)
Notable exclusions:
RIAs registered solely as mid-sized advisers, multi-state advisers, or pension consultants
RIAs reporting no assets under management (AUM) on Form ADV
State-registered advisers
Foreign private advisers
Family offices
For foreign-located investment advisers, the rule applies only to:
Activities within the United States
Services provided to U.S. persons or foreign-located private funds with U.S. investors
Key Changes:
Key Changes:
Key Changes:
Key Changes:
AML Compliance Officer
A compliance officer must be appointed to oversee AML operations.
A compliance officer must be appointed to oversee AML operations.
Internal
Controls
Internal control policies and procedures need to be implemented.
Risk- based
approach
Managers must conduct risk-based KYC and due diligence to assess impact and implement mitigation measures.
Employee
Training
Provide annual training to ensure employees understand and implement the policy.
Independent
testing
Conduct independent testing of the AML program. This needs to be done intermittently to test the system for weaknesses or gaps.
Employee
Training
Provide annual training to ensure employees understand and implement the policy.
Independent testing
Conduct independent testing of the AML program. This needs to be done intermittently to test the system for weaknesses or gaps.
Preparing for Compliance
Preparing for Compliance
Preparing for Compliance
Preparing for Compliance
To be compliant on time with the new requirements, investment advisers should start preparing now:
To be compliant on time with the new requirements, investment advisers should start preparing now:
To be compliant on time with the new requirements, investment advisers should start preparing now:
To be compliant on time with the new requirements, investment advisers should start preparing now:
Assess current compliance frameworks: Conduct a gap analysis to identify areas that need improvement. As part of this ensure that AML/CFT programs in place include the 5 pillars of processes, procedures and systems to identify and know who your investors are, implementing a risk-rating process for those investors, putting in place ongoing monitoring, as well as a mechanism to report suspicious activities (SAR).
Assess current compliance frameworks: Conduct a gap analysis to identify areas that need improvement. As part of this ensure that AML/CFT programs in place include the 5 pillars of processes, procedures and systems to identify and know who your investors are, implementing a risk-rating process for those investors, putting in place ongoing monitoring, as well as a mechanism to report suspicious activities (SAR).
Assess current compliance frameworks: Conduct a gap analysis to identify areas that need improvement. As part of this ensure that AML/CFT programs in place include the 5 pillars of processes, procedures and systems to identify and know who your investors are, implementing a risk-rating process for those investors, putting in place ongoing monitoring, as well as a mechanism to report suspicious activities (SAR).
Assess current compliance frameworks: Conduct a gap analysis to identify areas that need improvement. As part of this ensure that AML/CFT programs in place include the 5 pillars of processes, procedures and systems to identify and know who your investors are, implementing a risk-rating process for those investors, putting in place ongoing monitoring, as well as a mechanism to report suspicious activities (SAR).
Invest in fit-for-purpose technology: Innovation is a cornerstone of FinCEN’s proposal, particularly in the use of technology to enhance compliance. Implementing technology solutions for due diligence, reporting, and document storage becomes a must-have.
Invest in fit-for-purpose technology: Innovation is a cornerstone of FinCEN’s proposal, particularly in the use of technology to enhance compliance. Implementing technology solutions for due diligence, reporting, and document storage becomes a must-have.
Invest in fit-for-purpose technology: Innovation is a cornerstone of FinCEN’s proposal, particularly in the use of technology to enhance compliance. Implementing technology solutions for due diligence, reporting, and document storage becomes a must-have.
Invest in fit-for-purpose technology: Innovation is a cornerstone of FinCEN’s proposal, particularly in the use of technology to enhance compliance. Implementing technology solutions for due diligence, reporting, and document storage becomes a must-have.
Conclusion
Conclusion
Conclusion
Conclusion
The new FinCEN rule represents a significant change in the regulatory landscape for investment advisers. While it introduces new compliance obligations, it also provides an opportunity for firms to strengthen their risk management practices and contribute to the integrity of the financial system. By taking proactive steps to understand and implement these requirements, investment advisers can ensure they are well-positioned to meet their new obligations and mitigate potential risks.
Disclaimer: This guide is for informational purposes and does not constitute legal advice.
The new FinCEN rule represents a significant change in the regulatory landscape for investment advisers. While it introduces new compliance obligations, it also provides an opportunity for firms to strengthen their risk management practices and contribute to the integrity of the financial system. By taking proactive steps to understand and implement these requirements, investment advisers can ensure they are well-positioned to meet their new obligations and mitigate potential risks.
Disclaimer: This guide is for informational purposes and does not constitute legal advice.
The new FinCEN rule represents a significant change in the regulatory landscape for investment advisers. While it introduces new compliance obligations, it also provides an opportunity for firms to strengthen their risk management practices and contribute to the integrity of the financial system. By taking proactive steps to understand and implement these requirements, investment advisers can ensure they are well-positioned to meet their new obligations and mitigate potential risks.
Disclaimer: This guide is for informational purposes and does not constitute legal advice.
The new FinCEN rule represents a significant change in the regulatory landscape for investment advisers. While it introduces new compliance obligations, it also provides an opportunity for firms to strengthen their risk management practices and contribute to the integrity of the financial system. By taking proactive steps to understand and implement these requirements, investment advisers can ensure they are well-positioned to meet their new obligations and mitigate potential risks.
Disclaimer: This guide is for informational purposes and does not constitute legal advice.
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B4finance turn-key platform is natively built to support a robust KYC program, allowing fund managers to configure their due diligence rules, AML risk matrix, and perform ongoing monitoring of LPs records.
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