With the first quarter of 2025 behind us, we thought it was an appropriate time to provide an update on FinCEN’s AML rule for RIAs and ERAs. As we get closer to the 2026 deadline, it’s imperative that firms without defined compliance processes start putting together the pieces. For those just starting out on their journey, iCapital is here to help.
Below is the article originally run on parallelmarkets.com, detailing the changes coming for the industry.
Recent regulatory changes are set to reshape the landscape for registered investment advisers (RIAs) and exempt reporting advisers (ERAs). The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) finalized a rule in 2024 that requires certain investment advisers to implement Anti-Money Laundering (AML)/ countering the financing of terrorism (CFT) compliance programs and monitor for suspicious activity.
This game-changing rule is set to take effect on January 1, 2026. These regulations represent a major shift in how investment advisers will need to operate, and now is the time to prepare. In this post, we’ll break down what this means for investment advisers and how to stay ahead of the curve.
Why are these rules important?
For years, advisers have operated outside of the strict AML/CFT rules applied to banks, broker-dealers, and other financial institutions. But as the financial world becomes more complex, so do the risks. Investment advisers often handle substantial assets and transactions, which makes them a potential target for illicit activities like money laundering.
By extending the definition of “financial institution” under the Bank Secrecy Act (BSA) to include RIAs and ERAs, FinCEN intends to address and prevent money laundering, terrorist financing, and other illicit finance activity through the investment adviser industry.
Why is this change happening now?
FinCEN issued this rule in response to a U.S. Department of the Treasury 2024 risk assessment that identified the investment adviser industry as an entry point into the U.S. market for illicit proceeds associated with foreign corruption, fraud, tax evasion, and other criminal activities. Additionally, it noted that foreign states, particularly China and Russia, use investment advisers and their advised funds to invest in early-stage companies, gaining access to technologies and services with national security implications.
What does the AML/CFT Rule require?
The heart of the new rule is the requirement for RIAs and ERAs to develop a robust, written AML/CFT compliance program. This isn’t a one-size-fits-all directive — the AML program needs to be tailored to a firm’s specific risks and operations. Here’s what it will need to cover:
- Internal Policies and Procedures: These should be designed to prevent firms from being used for illicit finance, terrorist financing, or other suspicious activities.
- AML Compliance Officer: Every firm will need to designate one or more compliance officers to manage the program.
- Ongoing Training: Employees will need to receive ongoing AML training to stay compliant with evolving regulations.
- Independent Testing: Regular, independent testing will be necessary to ensure the program’s effectiveness.
- Risk-Based Customer Due Diligence: This diligence includes understanding the nature and purpose of customer relationships, developing and assessing customer risk profiles, conducting ongoing monitoring to identify and report unusual or suspicious transactions, and maintaining and updating customer information.
Reporting Suspicious Activity
One of the cornerstones of the new AML/CFT rule is the requirement for advisers to file Suspicious Activity Reports (SARs). If you suspect a transaction may involve funds from illegal activity, you’ll need to act. Here’s what triggers a SAR:
- Transactions conducted or attempted by, at, or through an investment adviser;
- Involving funds or assets of at least $5,000; and
- The investment adviser knows, suspects, or has reason to suspect one of the following:
- The transaction involves funds derived from illegal activity;
- The transaction is designed to evade reporting requirements;
- The transaction doesn’t make sense for the customer; or
- The transaction involves the use of the investment adviser to facilitate criminal activity.
Once flagged, the investment adviser is responsible for filing a SAR with FinCEN within 30 days.
What about recordkeeping?
The AML/CFT rule also requires detailed recordkeeping. RIAs and ERAs must maintain records of their AML activities, ensuring they’re available for inspection by regulators like FinCEN or the SEC. This isn’t just about filing away documents — it’s about creating an audit trail that proves a firm is taking AML/CFT compliance seriously.
Delegation, But Not a Free Pass
The AML/CFT rule does allow investment advisers to delegate some of these responsibilities to third parties, such as fund administrators. However, the investment adviser is still on the hook for compliance. For investment advisers that choose to delegate their AML obligations to a third party, oversight measures should be put in place, including due diligence, a written agreement with appropriate representations, procedures to update the adviser if there are any deficiencies identified in an audit, and/or periodic monitoring. In other words, make sure the third party is fully equipped to handle the work, and is ready to provide FinCEN and the SEC with records if requested. Delegation can lighten the load, but it doesn’t absolve the investment adviser of responsibility.
KYC and Customer Due Diligence
While the AML/CFT rule is comprehensive, it doesn’t directly require advisers to implement Customer Identification Programs (CIP). However, the SEC’s proposed CIP Rule is expected to mandate that advisers collect and verify key customer information, like names, dates of birth, addresses, and identification numbers, similar to what banks currently do.
As the upcoming CIP Rule is finalized, it’s a smart move to prepare and start building out KYC and Customer Due Diligence (CDD) procedures. RIAs and ERAs will need to establish risk-based procedures to assess customer relationships and spot suspicious activity over time.
The iCapital Perspective:
Formalizing customer onboarding and verification processes isn’t just about checking a box — it’s about protecting the firm and staying ahead of regulatory requirements.
What should RIAs and ERAs do now?
January 2026 may seem like a long way off, but preparing now is key to ensuring a smooth transition. Here’s how to get started:
- Review Your Compliance Programs: Make sure your existing AML/CFT programs are up to date and meet the new standards.
- Train Employees: Educate employees about the new rules, especially around the importance of SARs and due diligence.
- Leverage Technology: Invest in solutions that automate your compliance processes, including transaction monitoring and customer verification, to streamline your workflow and reduce the risk of error.
Stay Ahead of the Curve
The new AML and CIP rules are a significant shift in the regulatory expectations of investment advisers. With the right preparation and the right tools, investment advisers can not only comply with these regulations, but also build a stronger, more resilient operation. At iCapital, we’re here to help you navigate these changes with ease, offering advanced tools to streamline your AML/CFT compliance program.
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