On February 13, 2024, the United States Department of the Treasury's (Treasury) Financial Crimes Enforcement Network (FinCEN or the agency) issued a notice of proposed rulemaking (NPRM) seeking to apply anti-money laundering and countering the financing of terrorism (AML/CFT) requirements to certain investment advisers.1 The NPRM would bring investment advisers registered or required to be registered (RIAs) with the Securities and Exchange Commission (SEC) and investment advisers that report to the SEC as exempt reporting advisers (ERAs) within the definition of "financial institution" under the FinCEN rules implementing the Currency and Foreign Transactions Reporting Act, generally referred to as the Bank Secrecy Act (BSA).

Below, we summarize FinCEN's proposal and note some key takeaways for stakeholders, including the NPRM's effect on enforcement priorities of FinCEN, the SEC, and prosecutors at the US Department of Justice (DOJ). Notably, this NRPM does not yet have the force and effect of law, and FinCEN is seeking public comments for the record from stakeholders until on or about April 15, 2024.


FinCEN's proposed rule reflects growing concern among regulators and prosecutors about the potential use by illicit actors of entities falling outside the current BSA definition of "financial institution," which, pursuant to that statute, are required to have a compliance program for preventing money laundering and terrorist financing. While investment advisers are subject to various rules and regulations designed to deter fraud and to protect consumers, they are generally not subject to the same degree of AML/CFT measures designed to mitigate money laundering, terrorist financing, and other illicit financial activity risks, which FinCEN and other regulatory authorities impose on banks, broker-dealers in securities, and several other types of defined US financial institutions.

In FinCEN's view, to the extent that some investment advisers have implemented AML/CFT measures, that implementation is neither uniform across the market nor subject to comprehensive enforcement or examination.2 According to FinCEN, this state of affairs allows bad actors to route funds through investment advisers in order to enjoy the benefits of US investments in early stage companies or otherwise access certain technology, while avoiding scrutiny under the AML/CFT measures applicable to other entities that are classified as "financial institutions" pursuant to the BSA. The NPRM, therefore, represents the latest effort by FinCEN to exert jurisdiction over investment advisers and replaces similar proposed rules in 20153 and 20034 that have been withdrawn on the subject.

Proposed Rule

Covered Investment Advisers. As noted above, the NPRM would apply to RIAs and ERAs, which include advisers qualifying for the private fund adviser and venture capital adviser exemptions. Also covered by the NPRM are non-US investment advisers physically located abroad (i.e., do not have a branch, office, or staff in the United States) but are nonetheless registered or file Form ADV as an ERA. FinCEN would not apply the rules to state-registered investment advisers, finding that they are generally not implicated by the kinds of AML/CFT risks discussed above, although the agency will continue to monitor state-registered advisers prospectively for any uptick in indicia of money laundering, terrorist financing, or other illicit finance activities.

AML/CFT Requirements. Under the NPRM, investment advisers would be required to:

  • in the case of a receipt of $10,000 or more of currency, file Currency Transaction Reports (CTRs) rather than the joint FinCEN/Internal Revenue Service Form 8300;
  • report suspicious transactions by submitting Suspicious Activity Reports (SARs);
  • comply with the recordkeeping requirements and the Travel Rule;
  • comply with § 314(a) (and may voluntarily participate in § 314(b)) of the USA PATRIOT Act, which enables special information-sharing procedures between and among FinCEN, law enforcement government agencies, and certain financial institutions;
  • be subject to special due diligence standards, prohibitions, and measures in certain circumstances under §§ 311 and 312 of the USA PATRIOT Act; and
  • establish reasonably designed risk-based AML/CFT programs to combat money laundering and terrorism financing, including risk-based procedures for conducting customer due diligence (CDD) and evaluating certain businesses, such as registered closed-end funds, private funds, and wrap fee programs.

There are a few important points about the AML/CFT program requirement.

First, investment advisers would not be required to apply the AML/CFT program to advisory activities with respect to mutual funds, which have their own comprehensive obligations under the BSA. However, FinCEN specifically invites comment on the extension of certain obligations, including SAR filing, even in the context of advising mutual funds, as well as whether distinctions should be made between a primary adviser and sub-adviser.

Second, investment advisers already registered or dually-registered with the SEC as broker-dealers, which are already required to comply with FinCEN AML/CFT rules, would not have to create separate AML/CFT programs and can satisfy both regulatory regimes in one comprehensive program. Similarly, an investment adviser that is a subsidiary of another entity required to establish an AML/CFT program in another capacity can satisfy both regulatory regimes in one comprehensive program. While these are the only concrete exceptions, note that FinCEN requested comment on whether certain kinds of investment adviser activity should be exempt from the AML/CFT program requirement.

Third, examination authority of investment advisers for AML/CFT compliance with the proposed rule will be delegated by FinCEN to the SEC.

Significantly, the NPRM describes two obligations that FinCEN is not imposing on investment advisers: FinCEN noted that it would not be imposing either customer identification program (CIP) for individuals or beneficial ownership information collection obligations for legal entities under the CDD rule. This is because, under the BSA, CIP requirements "shall be prescribed jointly with each [relevant] Federal regulator."5 Thus, FinCEN anticipates addressing CIP via a future joint rulemaking with the SEC and addressing the requirement to collect beneficial ownership information for legal entity customers under the CDD rule in subsequent rulemakings.

In the interim, covered investment advisers should plan to implement "appropriate risk-based" procedures for conducting CIP and CDD. That less granular requirement is similar in nature to the requirements for certain other types of FinCEN-regulated financial institutions, such as "money services businesses," which are not subject to a specific CIP/CDD rule but are nonetheless expected to conduct appropriate, risk-based due diligence on their customers, as well as maintain records of certain transfers under the so-called Travel Rule. In practice, it is likely advisable for covered investment advisers to adopt a Know Your Customer ("KYC") program that is similar to the requirements contained in FinCEN's CIP/CDD rules for other financial institutions to avoid potentially being viewed as not having appropriate risk-based controls. Many investment advisers may already have KYC programs meeting the CIP/CDD rule standards, particularly where broker-dealers have sought to flow those requirements down to the investment adviser.


Considerations for RIAs and ERAs Contemplating New or Revised AML/CFT Programs:

  • For RIAs and ERAs that have voluntarily implemented AML/CFT programs, they will likely need to revisit those programs and make potentially significant adjustments to them. For example, many voluntary compliance programs do not have provisions related to SAR filing or compliance with the Travel Rule, to name just a few areas.
  • For covered investment advisers that do not currently have a voluntary program, it may be prudent to begin thinking about how to craft a program that would meet the requirements contained in the NRPM, including both how to establish written policies and procedures for the program and how to implement the program in practice with appropriate risk-based controls.
  • For RIAs and ERAs that have not implemented AML/CFT programs to date, the NPRM—together with the enactment and implementation of the Anti-Money Laundering Act of 2020—suggests that momentum to address the perceived gaps in the US AML regulatory framework is growing. While several prior proposals regarding AML program requirements for investment advisers did not come to fruition, the recent momentum and FinCEN's increased focus on illicit finance risks in the investment advisory sector indicate that this proposal may ultimately be finalized after FinCEN's receipt and review of comments on the NPRM.
  • Private fund advisers, in particular, should consider this proposal within the broader scope of the financial regulatory landscape in Washington. Senators Elizabeth Warren (D-MA) and Sheldon Whitehouse (D-RI) have been leading voices in urging FinCEN to exercise its jurisdiction over this industry in recent years.6 Additionally, under SEC Chair Gary Gensler's tenure, the SEC has adopted onerous new private fund adviser rules, expanded information required by Form PF, increased short position and short activity reporting, enhanced disclosure requirements concerning securities lending, and amended the "dealer" and "government securities dealer" to include certain private funds.7 SEC Commissioner Mark T. Uyeda described these actions as a "war on private funds" declared by the SEC.8 The enhanced focus on this industry by members of Congress and the SEC suggest that there will be pressure from other parts of the federal government on FinCEN to finalize these rules.

Potential Effect on SEC/DOJ Enforcement Priorities

  • The NPRM's focus on investment advisers who are registered or required to register with the SEC underlines a crucial limitation on the effective enforcement of the proposed new rules. Investment advisers required to register with the SEC and have done so are already likely to be compliance-minded and engaged in many of the kinds of AML/CFT procedures contemplated by the proposal. By contrast, entities that are required to register with the SEC but have not done so are more likely to be among the firms that present the highest risk of investigation or examination scrutiny. The NPRM, therefore, places renewed emphasis on the SEC (and DOJ) enforcement of registration requirements.
  • Indeed, in its discussion under the heading "Russian Political and Economic Elites' Access to US Investments," the NPRM expressly calls out certain "wealth management" or "consulting" firms that may avoid registration precisely because of the scrutiny that comes with engaging with the SEC at any level. Although in the Concord Management9 case, the SEC has recently filed suit against an alleged investment adviser that failed to register as such, ostensibly for the purpose of evading scrutiny of a particular client, such cases targeting failures to register not otherwise involving fraud on investors are few and far between. Even though the civil and criminal penalties associated with failures to register do not draw a distinction between those companies that fail to register in an effort to defraud customers (the classic scenario) and those that fail to register in an effort to avoid scrutiny by SEC in service to a particular customer (the novel, AML-related scenario), the rule as proposed places heavy emphasis on market regulators and prosecutors to police registration requirements in that second, novel context.
  • The SEC has deep experience examining AML programs and bringing enforcement actions for violations of the BSA and FinCEN regulations. Indeed, the SEC's Division of Examinations identifies AML programs as a 2024 priority.10 Specifically, the SEC staff will review whether broker-dealers and investment companies are (i) appropriately tailoring their AML program to their business model and associated AML risks; (ii) conducting independent testing; (iii) establishing an adequate CIP, and (iv) meeting their SAR filing obligations.11 These areas of focus align closely to the SEC staff's 2023 observations from AML compliance examinations of broker-dealers.12 Further, in Q4 2023, the SEC settled two enforcement actions for alleged BSA violations.13 The SEC's examination priorities and enforcement cases can provide helpful guideposts when building new or refining existing AML/CFT programs by investment advisers.

Next Steps

FinCEN included a long list of requests for comment and questions in the NPRM that deal with every proposed requirement and definition, as well as generally on the state of AML/CFT in the investment adviser market. The deadline for comments is April 15, 2024.

Steptoe provides legal advice on all aspects of AML rules and regulations. With regards to the issues raised by this NPRM, Steptoe can help you:

  • Assess and analyze the impact of the NPRM on your business and submit a comment letter to FinCEN;
  • Build or evaluate and enhance existing AML, CFT, and economic sanctions policies, procedures, and internal controls consistent with regulatory expectations and industry best practices;
  • Confront enforcement challenges in the administrative or law enforcement context.


1. Anti-Money Laundering/Countering the Financing of Terrorism Program and Suspicious Activity Report Filing Requirements for Registered Investment Advisers and Exempt Reporting Advisers, 89 Fed. Reg. 12108 (Feb. 15, 2024), https://www.federalregister.gov/documents/2024/02/15/2024-02854/financial-crimes-enforcement-network-anti-money-launderingcountering-the-financing-of-terrorism.

2. See id. at 12111.

3. See Anti-Money Laundering Program and Suspicious Activity Report Filing Requirements for Registered Investment Advisers, 80 Fed. Reg. 52680 (Sept. 1, 2015).

4. See Anti-Money Laundering Programs for Investment Advisers, 68 Fed. Reg. 23646 (May 5, 2003).

5. 31 U.S.C. § 5318(h).

6. See Letter from Elizabeth Warren & Sheldon Whitehouse, US Sens., to Janet Yellen, Sec'y of US Dep't of Treasury & Gary Gensler, Chair of Sec. & Exch. Comm'n, (Mar. 29, 2022), https://www.warren.senate.gov/imo/media/doc/2022.3.29%20Letter%20to%20Treasury%20and%20SEC%20on%20Private%20Investment%20&%20AML%20CFT.pdf. See also Press Release, Whitehouse Welcomes FinCEN Proposed Rule Extending Anti-Money Laundering Safeguards to Investment Advisers (Feb. 14, 2024), https://www.whitehouse.senate.gov/news/release/whitehouse-welcomes-fincen-proposed-rule-extending-anti-money-laundering-safeguards-to-investment-advisors.

7. See Further Definition of "As a Part of a Regular Business" in the Definition of Dealer and

Government Securities Dealer in Connection with Certain Liquidity Providers, 17 CFR. § 240 (Feb. 6, 2024).

8. Mark T. Uyeda, Commissioner, Sec. & Exch. Comm'n, Statement on Further Definition of "As a Part of a Regular Business" in the Definition of Dealer (Feb. 6, 2024), https://www.sec.gov/news/statement/uyeda-statement-dealer-trader-020624.

9. See Complaint, SEC v. Concord Mgmt., No. 23-cv-08253 (SDNY Sept. 19, 2023), https://www.sec.gov/files/litigation/complaints/2023/comp-pr2023-186.pdf.

10. US Sec. & Exch. Comm'n, Div. of Examinations, 2024 Examination Priorities, https://www.sec.gov/files/2024-exam-priorities.pdf.

11. Id. at 21.

12. See US Sec. & Exch. Comm'n, Div. of Examinations, Risk Alert: Observations from Anti-Money Laundering Compliance Examinations of Broker-Dealers (July 31, 2023), https://www.sec.gov/files/risk-alert-aml-compliance-examinations-bd-073123.pdf.

13. See Press Release, Sec. & Exch. Comm'n, Deutsche Bank Subsidiary DWS to Pay $25 Million for Anti-Money Laundering Violations and Misstatements Regarding ESG Investments (Sept. 25, 2023), https://www.sec.gov/news/press-release/2023-194; Press Release, Sec. & Exch. Comm'n, SEC Charges Registered Representative with Causing Brokerage Firm's Failure to Timely file a SAR Concerning Suspicious Wires Surrounding an Acquisition Announcement (Sept. 18, 2023), https://www.sec.gov/enforce/34-98418-s.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.