FinCEN Issues Final Rule on Investment Advisor Reporting
FinCEN recently issued a final rule regarding reporting requirements for investment advisors. The rule takes effect on January 1, 2026.
In issuing the final rule, FinCEN wrote, “Investment advisers—including those exempt from [SEC] registration—and their private funds, particularly venture capital funds, are also being used by foreign states…to access certain technology and services with long-term national security implications through investments in early-stage companies. Finally, there are numerous examples of investment advisers defrauding their customers and stealing their funds.”
Accordingly, the final rule expands the definition of “financial institution” to include SEC-registered investment advisers and exempt reporting advisers, although it limits the definition of “investment adviser” to exclude investment advisers that only register with the SEC because they are mid-sized advisers, multi-state advisors, or pension consultants. If an investment adviser has their principal office and place of business outside of the U.S., the rule only applies to activities that take place within the U.S., or provide services to U.S. persons or foreign-located private funds with an investor that is a U.S. person.
The final rule additionally imposes certain minimum standards on investment advisers for maintaining written anti-money laundering/countering the financing of terrorism programs that are “risk-based and reasonably designed to prevent the investment adviser from being used for money laundering, terrorist financing, or other illicit finance activities and to achieve and monitor compliance with the applicable provisions of the Bank Secrecy Act (as defined in 31 C.F.R. § 1010.100(e)) and the implementing regulations promulgated thereunder by the Department of the Treasury.” Such programs must meet certain minimum requirements, such as establishing and implementing “internal policies, procedures, and controls reasonably designed to prevent the investment adviser from being used for money laundering, terrorist financing, or other illicit finance activities and to achieve compliance with the applicable provisions of the Bank Secrecy Act.”
Finally, the final rule imposes certain suspicious activity reporting requirements on investment advisers. For example, an investment adviser must make a suspicious activity report for any transaction conducted or attempted by, at, or through that investment adviser that involves or aggregates funds or assets of at least $5,000, and such investment adviser knows, suspects, or has reason to suspect that the transaction (among other things) “Involves funds derived from illegal activity or is intended or conducted in order to hide or disguise funds or assets derived from illegal activity (including, without limitation, the ownership, nature, source, location, or control of such funds or assets) as part of a plan to violate or evade any Federal law or regulation or to avoid any transaction reporting requirement under Federal law or regulation[.]”
