Proposed AML Changes For Advisors – What Wealth Industry Needs To Know

Daniel G Berick March 8, 2024

Proposed AML Changes For Advisors – What Wealth Industry Needs To Know

This article – from law firm Squire Patton Boggs – charts important new developments in the compliance field.

The following article, which is from Daniel G Berick, partner, Cleveland, at law firm Squire Patton Boggs, was originally issued by SPB, and is re-published here with the firm's permission.This news service has been pleased to carry a range of SPB material on the challenges and developments of family offices over recent years. This article examines new compliance rules that have come into force in February, and explains their salient features; it is relevant for family offices, RIAs, and other professionals acting for HNW and ultra-HNW clients in the US, and for that matter, further afield.

As ever, we welcome responses and comments. Jump into the conversation! The usual editorial disclaimers apply. Email

On February 13, 2024, the US Department of the Treasury, acting through the Financial Crimes Enforcement Network (FinCEN), issued proposed rules that would require certain investment advisors to comply with the Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) requirements of the Bank Secrecy Act (BSA), to file suspicious activity reports (SARs) and to comply with certain other recordkeeping and notification requirements of the BSA. FinCEN has requested public comments on these proposed rules by April 14, 2024.

Here Is what family offices need to know 
Originally enacted in 1970, the goal of the BSA has been to establish programs to be adopted by “financial institutions” in order to “promote greater effectiveness and efficiency in combating money laundering, the financing of terrorism, proliferation financing, serious tax fraud, trafficking, sanctions evasion and other financial crimes.” At present, the BSA defines “financial institutions” as “securities brokers, dealers, investment bankers and investment companies,” and, until now, FinCEN has not included in its rulemaking entities that are defined as registered investment advisors or exempt reporting advisors under the Investment Company Act.

As part of FinCEN’s continued rulemaking focus on the prevention of money laundering and terrorism financing through enhanced reporting and greater entity transparency (1), FinCEN noted that “[t]housands of investment advisors overseeing the investment of tens of trillions of dollars into the US economy are generally not subject to comprehensive anti-money laundering and countering the financing of terrorism (AML/CFT) measures.” (2)

To address this perceived regulatory deficiency, the proposed rules would impose new reporting and compliance obligations on RIAs and ERAs (exempt reporting advisors). Specifically, the proposed rules would apply to:

-- Investment advisors that are registered with the Securities and Exchange Commission (RIAs); and

-- Investment advisors that report to the SEC as (ERAs) In general, investment advisors must register with the SEC if they have over $110 million in assets. ERAs are investment advisors that advise only private funds and have less than $150 million in AuM in the US or advise only venture capital funds. ERAs are, and would remain, exempt from full SEC registration but still must file certain information with the SEC. As currently proposed, family offices that qualify for exemption from registration under the “family office rule” (3) would not be directly subject to the new rules.

What the proposed rules say as currently proposed, RIAs and ERAs would be required to:
-- Design and implement AML/CFT control programs. This would, in practice, impose on RIAs and ERAs a similar requirement for a risk-based AML program as the BSA already imposes on broker-dealers and the other entities that it defines as “financial institutions”; 

-- Conduct periodic testing for internal compliance and efficacy of the program;  

-- Provide ongoing AML/CFT training for appropriate persons and designate appropriate personnel to oversee compliance; 

-- Conduct ongoing customer due diligence and file SARs and other reports; and 

-- At the direction of the US Treasury, take additional “special measures” under Section 311 of the USA PATRIOT Act to address money laundering concerns, which could include obtaining, retaining, or reporting additional account or customer information.

“At this time” and “subsequent rulemaking” make it clear, if there were otherwise any doubt, that there is more rulemaking on the subject to come. Our Family Office team will be monitoring the rulemaking in this space for further developments.

What Comes Next? 
As proposed, the new FinCEN rules would not impose additional requirements on family offices that are able to rely on the family office rule, although family offices may find themselves being asked for additional information, regarding identity of account owners, sources and transmittals of funds, and the like, from the investment advisors with which they do business. More importantly, FinCEN has signaled that this most recent set of proposed rules is not its last word on the subject: in its fact sheet announcing the proposed rules, (4) FinCEN stated: At this time, FinCEN is not proposing a customer identification program requirement for investment advisors. FinCEN anticipates addressing customer identification program requirements for investment advisors in a future joint rulemaking with the SEC. FinCEN is also not proposing an obligation for investment advisors to collect beneficial ownership information for legal entity customers. FinCEN anticipates addressing this requirement for investment advisors in a subsequent rulemaking.

1 Family Office Insights: Beneficial Ownership Reporting Under the US Corporate Transparency Act.
2 Fact Sheet: Anti-Money Laundering Program and Suspicious Activity Report Filing Requirements for Registered Investment Advisers and Exempt Reporting
Advisers Notice of Proposed Rulemaking (NPRM) |
3 Investment Advisers Act Rule 202(a)(11)(G)-1. Family Office Insights: The Family Office Rule Under the Investment Advisers Act.
4 Fact Sheet: Anti-Money Laundering Program and Suspicious Activity Report Filing Requirements for Registered Investment Advisers and Exempt Reporting Advisers Notice of Proposed Rulemaking (NPRM) |

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