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On September 4, 2024, the Financial Crimes Enforcement Network (FinCEN) announced a new rule that impacts investment advisers, effectively bringing them under the Bank Secrecy Act (BSA). The move aims to strengthen the financial system by closing loopholes that bad actors exploit for money laundering and other illicit activities. But what does this mean for business owners working with investment advisers? This blog explains the key points of the new FinCEN rule and how it may affect your business dealings with investment advisers. 
Background of the FinCEN Rule
FinCEN is an arm of the U.S. Treasury, created to prevent money laundering and other financial crimes. The new rule is part of a broader effort by the Biden-Harris administration to curb financial misconduct and boost transparency. Specifically, the rule aims to reduce the risk of bad actors using investment advisers to launder money or make investments that could impact national security.
Effective January 1, 2026, investment advisers must comply with new standards, including anti-money laundering (AML) programs, that will align them with other financial institutions already covered by the BSA.
Who Does This Rule Affect?
The new FinCEN rule applies to Registered Investment Advisers (RIAs) and some exempt reporting advisers (ERAs). RIAs, who must register with the U.S. Securities and Exchange Commission (SEC), and ERAs, who report certain information without SEC registration, now fall under the “financial institution” category defined by the BSA. This categorization is crucial because it means that they must meet specific regulatory requirements to prevent money laundering and other forms of financial crime.
However, the rule does not cover state-registered advisers, foreign private advisers, or family offices. It also exempts RIAs that only need to register with the SEC due to their mid-sized advisory activities or other limited criteria.
Key Compliance Requirements
Investment advisers subject to the new rule must implement an AML program. This program should be “reasonably designed” to prevent financial crimes like money laundering and terrorist financing. Specifically, the AML program must include:
- Written Anti-Money Laundering Program
Advisers must establish a written program to detect and prevent illicit activities. - Independent Compliance Testing
Compliance testing can be conducted by in-house staff or by outside parties to ensure the effectiveness of the AML program. - Customer Due Diligence (CDD)
Investment advisers must have procedures for monitoring customer information and identifying suspicious activities.
Additionally, they need to file Suspicious Activity Reports (SARs) and maintain records, as mandated by the BSA.
Implications for Business Owners
If you are a business owner working with investment advisers, understanding these new regulations is essential. The enhanced transparency aims to make the financial environment safer for legitimate businesses. However, increased regulatory compliance might lead to higher costs for investment advisers, which could eventually affect the services they provide to you.
It’s also important to discuss these compliance changes with your investment adviser to ensure that they meet all regulatory requirements by January 1, 2026. Having a transparent conversation now can help you avoid surprises later, especially concerning how the adviser manages your investments.
What Should You Do Next?
This new FinCEN rule is part of a growing movement toward tighter regulation and enhanced transparency in the financial sector. As a business owner, understanding how these regulations impact your investment strategy is crucial to maintaining compliance and ensuring the safety of your financial transactions.
Schedule a Consultation Today
If you’re unsure how the new FinCEN rule affects your business investments, now is the time to seek professional advice. Our experienced business litigation team is here to help you navigate the complex regulatory landscape. Contact us today at 714-415-2007 to schedule a consultation and ensure your investments remain secure and compliant.
