AML Program Deadline Looms for Investment Advisers

Effective January 1, 2026 (with few exceptions) Registered Investment Advisers (“RIAs”) and Exempt Reporting Advisers (“ERAs” together with “RIAs”, “Advisers”) will be “Financial Institutions” under the Bank Secrecy Act of 1970 and will be required to have an Anti-Money Laundering/Countering the Financing of Terrorism Program (“AML/CFT”).Yet a major component of that program, the Customer Identification Program (“CIP”) is still just a proposal and has not been adopted. We are calling on the SEC to rescind or delay the enforcement of these new rules until there is more clarity about what the complete AML/CFT Program (including the CIP) will require.

The term Advisers currently excludes mid-sized advisers, multi-state advisers, pension consultants, RIAs that report $0 in RAUM and state registered advisers. Foreign based advisers will be required to “look through” beneficial owners of private fund investors to determine if there are U.S. persons invested in their funds.

The US Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) has delegated oversight of the AML/CFT Program for Advisers to the SEC. The SEC has been vigorously enforcing AML/CFT Program requirements with respect to registered broker-dealers and mutual funds.A particular focus of recent SEC enforcement actions has been the failure to timely file adequate Suspicious Activity Reports (“SARs”).The requirement to file SARs also applies to Advisers as of January 1.

The applicability of AML/CFT Program rules to Advisers follows a 2024 risk analysis by the U.S. Treasury that found certain RIAs and ERAs and private funds were being used by foreign states, especially China and Russia, to access certain technology with long-term national security implications through investment in early stage companies especially in microelectronics, artificial intelligence, biotechnology, biomanufacturing, and quantum computing.

Until rescinded or delayed, Advisers must prepare for the January 1, 2026, deadline by preparing a risk-based and reasonably designed AML/CFT program to prevent Advisers from being used for money laundering, terrorist financing or other illegal activities.

Minimum AML/CFT Program Requirements

Internal Policies Procedures and Controls

Independent Audit Function to Test the Program

AML/CFT Officer

Employee Training

Ongoing Customer/Investor Due Diligence

AML/CFT Program Written Approval

Suspicious Activity Reporting

Recent Enforcement Actions

Robinhood Financial LLC Broker Dealer failed to promptly review potentially suspicious activity or file SARs on time (Jan. 13, 2025).

Navy Capital Adviser misrepresented AML program (diligence on prospective investors) in offering documents and DDQs (Jan. 14, 2025).

LPL Financial LLC Broker Dealer failed to ascertain identity of customers and to conduct ongoing customer due diligence;also failed to close higher risk accounts prohibited by AML policies (Jan. 17, 2025).

OTC Link LLC Broker Dealerfailed to file SARs; failed to adopt or implement reasonably designed AML policies or procedures to surveil transactions (Aug. 12, 2024).

Lightspeed Financial Services Group LLC One of three Broker Dealers that failed to include important required information in SARsfiled.SARs must contain a clear, complete, and concise description of the activity, including what was unusual or irregular that caused suspicion (Nov. 22, 2024).

Deutsche Bank Subsidiary DWSFailure by mutual fund to develop AML program tailored for its business; failure conduct training (Sept. 25, 2023).