Treasury pauses AML rule for investment advisors

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The Treasury's Financial Crimes Enforcement Network suspended enforcement of a rule that would require investment advisors to comply with Bank Secrecy Act requirements, including implementing anti-money-laundering controls and filing suspicious activity reports to Fincen.

"Fincen recognizes … that the rule must be effectively tailored to the diverse business models and risk profiles of the investment adviser sector," the agency said in a release. "Fincen also recognizes that extending the effective date of the rule may help ease potential compliance costs for industry and reduce regulatory uncertainty while FinCEN undertakes a broader review of the [investment advisor] AML Rule."

The final rule issued last year — that would have gone into effect on Jan. 1, 2026 — will now be extended until Jan. 1, 2028, Fincen "anticipates." The agency also says it will make adjustments to the rule and extend the effective date through the normal administrative rulemaking process, aiming to give financial advisors adequate time to anticipate and adjust to the new standards. In collaboration with the Securities and Exchange Commission, Fincen says it will also revise the customer identification program requirements for investment advisors. 

The agency has never subjected investment advisors to the full AML requirements as spelled out in the Bank Secrecy Act, despite attempting to bring them under the BSA regime multiple times in the past, most recently in 2015. Under the proposal, registered investment advisors — who are accredited by the Securities and Exchange Commission — and investment advisors that report to the SEC as exempt reporting advisors would both be subject to the proposed rule. 

The Treasury's financial crimes division has been eyeing the risks posed by investment advisors for some time. In a 2024 risk assessment report, the Treasury said advisors have in some cases served as an on-ramp into the U.S. market for corrupt, fraudulent or tax evading illicit actors to park their funds. The sector is vulnerable to illicit actors, the report says, because it is generally exempt from anti-money-laundering or countering the financing of terrorism requirements. Advisors' activities are also wide-ranging, sometimes creating discrepancies in information sharing across borders and often privilege client secrecy at the expense of transparency for financial crime watchdogs. 

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"Certain advisers manage billions of dollars ultimately controlled by sanctioned entities including Russian oligarchs and their associates who help facilitate Russia's illegal and unprovoked war of aggression against Ukraine," the report states. "Certain [SEC registered investment advisors] and [advisors exempt from SEC registration] and the private funds that they advise are also being used by foreign states … [like China] and Russia, to access certain technology and services with long-term national security implications through investments in early-stage companies … certain investment advisers have stolen client assets, including through fraud."

Fincen notes it is tailoring the requirements of the proposed rule to balance minimizing the burden on businesses and bolstering transparency. The proposed rule wouldn't impose AML/CFT program or SAR filing obligations on the mutual funds overseen by investment advisors, and Fincen will delegate some of its BSA examination authority to the SEC under the rule — just as it already does for broker/dealers and mutual funds.

Fincen has found in a report various state actors  — including from sanctioned jurisdictions, tax evaders, terrorist organizations and illicit actors of various kinds — tap into U.S. investment industry to circumvent sanctions and hide illicit activity.