Fincen to punt advisor rule, seeks stablecoin feedback

Key insight: The Treasury's investment adviser rule outlining anti-money laundering requirements for advisers could be pushed back by years.

Supporting data: The agency estimated the move could save the private sector significant compliance costs.

Forward look: Investment advisers may still face AML requirements, but Fincen said it is planning to revise the regulations in the future to reduce the compliance burden.

The Treasury Department's Financial Crimes Enforcement Network officially proposed postponing new anti-money laundering standards for investment advisers by several years in order to give the agency time to revise the rules.

The move, issued in a draft notice of proposed rulemaking set to be published in the Federal Register on Monday, will solicit public comment for 30 days on the move to delay the rule's implementation to January 1, 2028. The rules were slated to go into effect on January 1, 2026. 

"By delaying the effective date, Fincen will be afforded an opportunity to review the [investment adviser anti-money laundering] Rule and, as applicable, ensure the Investment Adviser AML Rule is effectively tailored to the diverse business models and risk profiles of types of firms within the investment adviser sector," Fincen said in a statement. "This review may afford FinCEN an opportunity to reduce any unnecessary or duplicative regulatory burden and ensure the IA AML Rule strikes an appropriate balance between cost and benefit — while still adequately protecting the U.S. financial system and guarding against money laundering, terrorist financing, and other illicit finance risks."

Fincen proposed the IA rule in February last year that classified certain advisers as "financial institutions" under the Bank Secrecy Act, compelling them to apply certain AML controls and file suspicious activity reports to Fincen.

Investment advisors have never been subjected to the full AML requirements of the Bank Secrecy Act, despite the agency attempting to bring them under the BSA regime in the past. 

In the final rule issued last year, Fincen notes it is tailoring the requirements of the proposed rule to balance minimizing the burden on businesses and transparency. 

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. 

However, the agency now says the rule was too costly for the private sector, and says the proposed delay is projected to reduce compliance costs for investment advisors by about $1.45 billion across 2026 and 2027, but added that "the sum total of the combined economic effects of the proposed rule may be difficult to quantify."

"Nevertheless, Fincen anticipates that the proposed delay could reduce certain direct

costs by enabling covered IAs to forgo select compliance-related activities and expenditures," the agency noted in the proposal. "At the same time, the proposed delay may indirectly increase economic benefits because of certain potential additional costs not previously contemplated in the IA AML Rule…includ[ing] potential economic costs related to regulatory uncertainty, regulatory fragmentation, and costs associated with expediting compliance."

Regulation and compliance

Fincen to subject investment advisors to anti-money laundering rules

February 13, 2024 10:38 AM

The proposal will be open for 30 days following its publication in the Federal Register, which is scheduled for Sept. 22. 

The Treasury also announced its intent to solicit feedback on the regulatory rollout of stablecoin regulations, following the recent Guiding and Establishing National Innovation for U.S. Stablecoins, or GENIUS Act's passage. The agency wants to hear public feedback on key definitions like how to classify payment stablecoins and service providers. They are also looking for information regarding stablecoins issuance, reserves, sanction compliance and how to monitor transactions. 

Treasury said it aims to hear from a broad range of stakeholders, from industry to consumer groups, before drafting regulatory proposals for stablecoins. The agency invited stakeholders to weigh in on how other countries are regulating digital assets, tax guidance, insurance considerations, economic impacts of the rules and risks from failed stablecoin issuers.