AML Compliance for Investment Advisers: The Regulatory Landscape in 2024

Investment advisers registered with the SEC have historically occupied an unusual position in the BSA framework. Unlike banks, broker-dealers, and MSBs, registered investment advisers were not explicitly required to maintain AML programs under FinCEN's regulations. That regulatory gap has been a source of concern for years, and FinCEN has been working to close it. In 2024, the regulatory trajectory for investment adviser AML obligations is clearly toward more requirements, not fewer.

FinCEN's proposed rulemaking to extend AML program requirements to registered investment advisers and exempt reporting advisers has been in development for several years. The proposed rule would require advisers to implement written AML programs, file SARs, and comply with the Travel Rule. While the final rule has not yet been published, the direction is clear - advisers who are not preparing for these requirements are behind the curve.

Even without a final rule, investment advisers face AML-related obligations through other regulatory channels. SEC examination staff have been asking about AML-related controls in adviser examinations, and advisers with significant exposure to high-risk clients - foreign nationals, politically exposed persons, clients with complex ownership structures - face heightened scrutiny. Advisers who cannot demonstrate that they have thought carefully about money laundering risk in their client base are increasingly finding that in examination findings.

The practical preparation for investment advisers is to build the infrastructure now that will be required when the final rule is published. This means conducting a risk assessment of your client base and business model, drafting written AML policies and procedures, designating a compliance officer with AML responsibility, and implementing a training program for relevant staff. Advisers who have this infrastructure in place when the final rule is published will face a much smoother compliance transition than those who are starting from scratch.

For advisers with significant exposure to international clients, real estate investment, or alternative assets, the AML risk profile is elevated regardless of the current regulatory requirements. These advisers should be conducting enhanced due diligence on high-risk clients, monitoring for unusual transaction patterns, and documenting their compliance activities in a way that would satisfy examination scrutiny. The regulatory requirements are catching up to the risk - advisers who are ahead of the requirements will be better positioned when they arrive.