Following up and consistent with public statements earlier this summer, FinCEN has formally proposed a two year delay of the effective date of its 2024 final rule that subjects certain investment advisers to the requirements of the Bank Secrecy Act (the “IA Final Rule”). Originally scheduled to become effective on January 1, 2026, the FinCEN proposal would extend the effective date to January 1, 2028. FinCEN noted the delayed effectiveness was necessary to allow it additional time to review the rule to consider whether it had been effectively tailored to reduce unnecessary regulatory burdens.
The IA Final Rule was published following a 2024 risk assessment by the U.S. Department of the Treasury that identified various instances of illicit financing threats involving investment advisers. Investment advisers subject to the rule include those required to register with the SEC and investment advisers that report information to the SEC as exempt reporting advisers (collectively, “covered advisers”). The IA Final Rule requires covered advisers to:
- implement an anti-money laundering/countering financing of terrorism program;
- file Suspicious Activity Reports (“SARs”) and Currency Transaction Reports (“CTRs”);
- keep fund transmittal records; and
- comply with information sharing procedures and other obligations required of “financial institutions” under the BSA.
When the rule was originally proposed, FinCEN sought to address concerns with the proposal’s regulatory burdens by providing several exclusions from a covered adviser’s obligations in the final rule, including excluding a covered adviser’s obligations with respect to mutual funds and certain collective investment funds and to other covered advisers. Nevertheless, concerns remained that the IA Final Rule had not been sufficiently tailored, including industry concerns that different business models of investment advisers can present little money laundering risk and that investment advisers do not have physical custody of client assets, which are held by custodians already subject to compliance regimes. The trade groups also advocated for delayed effectiveness given uncertainty around a FinCEN (and SEC) proposal requiring certain investment advisers to implement customer identification procedures.
The language of the proposal to delay effectiveness of the IA Final Rule suggests further tailoring of its requirements should be expected, including potentially recognizing and accounting for different levels of risk based on differences in business models and perhaps tailoring of SAR and CTR filing requirements.
Comments on the proposal are due by October 22, 2025. While FinCEN acknowledged that a comment period of at least 60 days would be consistent with certain Executive Orders, it indicated that a shorter 30-day comment period was appropriate in this case given the lack of complexity in the proposal and need to provide regulatory clarity on the compliance date.
