Earlier this year, we discussed the proposed rule by the Financial Crimes Enforcement Network (FinCEN) that aimed to impose Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) compliance obligations on Registered Investment Advisers (RIAs).¹ In late August 2024, FinCEN finalized this rule, marking a potentially-significant shift in the compliance landscape for RIAs and closing a long-standing gap in the US regulatory regime (the ‘Investment Adviser Rule’ or ‘Final Rule’). This development underscores the increasing focus on financial crimes compliance and the critical role RIAs play in safeguarding the financial system. Covered Investment Advisers will be required to come into compliance with the rule by January 1, 2026.

Historically, RIAs have operated without the same level of BSA/AML and CFT (Countering the Financing of Terrorism) obligations as other financial institutions. However, the growing complexity of financial markets and the sophistication of illicit activities have prompted regulators to extend these requirements. The final rule by FinCEN brings RIAs squarely into the fold of entities (i.e. ‘Financial Institutions’) responsible for implementing risk-based BSA/AML programs.

The Investment Adviser Rule stipulates that Compliance Programs for covered investment advisers must include:²

• The Designation of a BSA/AML Compliance Officer
  
• Written policies, procedures, and internal controls designed to prevent illicit financial activity
  
• BSA/AML training for all appropriate employees
  
• Independent periodic testing of the BSA/AML program
  
• Ongoing Customer Due Diligence (CDD) and monitoring for suspicious transactions.
  
  

KEY DIFFERENCES BETWEEN THE PROPOSED AND FINAL RULE

The final Investment Adviser Rule accepts the majority of provisions from FinCEN’s original proposed rule in February, with some notable key revisions in response to public comments:

• Definition of Investment Adviser: The definition of ‘investment adviser’ has been narrowed from the Proposed Rule to exclude RIAs that register with the SEC solely because they are mid-sized advisers; multi-state advisers; pension consultants; or advisers that do not report any assets under management to the SEC
  
• Applicability of Foreign Investment Advisers: The final Investment Adviser Rule is consistent with the proposed rule in that the rule will apply to non-US investment advisers. However, the final rule clarifies that only activities of foreign advisers that:
  
  • Take place within the United States, and/or through the adviser’s US personnel
  • Provide advisory services to a US person or a foreign private fund with a US investor
• Customer Due Diligence (CDD) Requirements: Notably, as opposed to the proposed rule that did not include CDD conditions, the final rule will require two core CDD elements:
  
  • Implement CDD procedures to know nature and purpose of customer relationships; 
    
  • Conduct ongoing monitoring for suspicious activity and update customer information
    Note: Although the Investment Adviser Rule will not immediately require in-scope investment advisers to comply with the CIP (customer identification program) Rule or Beneficial Ownership requirements of the CDD rule, FinCEN has plans to incorporate these requirements through separate rulemakings.

Next Steps for Covered Investment Advisers

Investment Advisers should take proactive steps to assess their existing compliance functions, operations, and technology to determine their readiness for the upcoming compliance date of January, 2026. As a starting point, Capco recommends the following initial actions to determine the scope and depth of any necessary compliance efforts:

• Conduct an enterprise gap assessment to evaluate existing AML/CFT compliance processes and controls to determine the distance between the current program and new rule requirements
  
• Determine a strategy and approach to achieve compliance, determining if the RIA should enhance existing programs or build from scratch (this should include investment in technology and human capital)
  
• Improve and/or develop critical BSA/AML processes (e.g. customer due diligence, transaction monitoring)
  
• Develop policies, procedures, and training to sustain the AML/CFT program
  
• Review relationships with key third party service providers such as placement agents, administrators, custodians, and Business Process Outsourcing companies (‘BPO’), as these entities are often relied upon to deliver critical anti-financial crimes compliance functions.  Impacted advisers should evaluate the quality of data feeds from these provides as they, in parallel, evaluate their own critical data elements. 
  
  

HOW CAPCO CAN HELP 

Capco’s US business has 35+ resources with an average of 12 years’ experience in financial crimes compliance and related risk management, including 15 Certified Anti-Money Laundering Specialists (CAMS).

We can quickly assess BSA/AML Compliance Programs, using a proven framework to right-size the scope and breadth of AML/CFT activities to meet the specific needs of each Investment Adviser’s business operations.

We can deliver in both an advisory and a managed services capacity to support clients’ AML/BSA Compliance needs. For example, we can assist in anything from designing a bespoke BSA/AML compliance operating model to the execution of ongoing monitoring of KYC and/or transaction monitoring alert and case disposition. 

We have experience with Financial Institutions of all sizes and risk-profiles and can tailor our services, accordingly, including scalable resource pools to meet periods of high demand or backlogs of work requiring completion.

Our team draws from a diverse background of lawyers, ex-regulators, leading risk management professionals, data scientists, and former BSA Officers and CCOs. 

Capco’s deep domain expertise coupled with our agile and entrepreneurial approach means we can design tailored solutions rapidly and effectively using leading technology such as GenAI and our homegrown SAR Genie.


References

¹ https://www.capco.com/intelligence/capco-intelligence/fincen-proposes-bsa-aml-compliance-obligations-for-advisers  
² https://public-inspection.federalregister.gov/2024-19260.pdf