New Compliance Regulations for Investment Advisors Announced by FinCEN

In 2024, investment advisers – those registered with the U.S. Securities and Exchange Commission (SEC) and those that file notices as exempt from registration – will face new compliance regulations. The Financial Crimes Enforcement Network (FinCEN) has proposed a rule that would require investment advisors to implement anti-money laundering (AML) compliance programs. This move aims to combat illicit finance and national security threats within the asset management industry.

Compliance with the Securities and Exchange Commission's marketing rule has been named advisors' top chore for the third year in a row. The Commission has not provided legacy status for disclosure portions of the Preferential Treatment Rule, leading to increased scrutiny on compliance efforts. Investment advisors must ensure that their marketing materials are in line with regulatory requirements to avoid penalties.

On August 23, 2023, the Commission adopted a package of new rules known as the “Private Funds Rules” for private fund advisers. These rules, aimed at promoting transparency and investor protection, will impact how advisors operate within the private fund space. The provision requiring investment advisors to comply with AML regulations was included in this rule package as part of the broader effort to enhance regulatory oversight.

Introduction. On February 13, 2024, FinCEN proposed a long-awaited rule to combat illicit finance and national security threats in the asset management industry. The proposed rule would categorize investment advisors as financial institutions that must comply with AML regulations. This marks a significant shift in regulatory requirements for advisors, who will now be held to the same standards as traditional financial institutions.

The Financial Crimes Enforcement Network will propose categorizing investment advisors as financial institutions that must comply with AML regulations. This classification reflects the growing recognition of the role investment advisors play in the financial system and the need for heightened compliance measures. Advisors will need to establish robust AML programs to detect and prevent money laundering activities within their client base.

The provision was buried on page 302 of a rule focused on private-fund advisors. The SEC also reopened the comment period on its advisor disclosure requirements, signaling a potential overhaul of existing regulations. Investment advisors should stay informed about these developments to ensure they are in compliance with the latest regulatory changes. Category: Research