The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) recently announced a Notice of Proposed Rulemaking (NPRM) aimed at keeping bad actors from exploiting the U.S. financial system and assets through investment advisers. Specifically, it would require certain investment advisers to apply Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) requirements pursuant to the Bank Secrecy Act (BSA), including implementing risk-based AML/CFT programs, reporting suspicious activity to FinCEN, and fulfilling recordkeeping requirements such as those relating to the transmittal of funds (i.e., comply with the Recordkeeping and Travel Rule). FinCEN is proposing to delegate its examination authority to the SEC.

The proposed rule would include certain investment advisers under the BSA’s definition of “financial institution,” specifically investment advisers registered with the Securities and Exchange Commission (SEC), also known as registered investment advisers (RIAs), and investment advisers that report to the SEC as exempt reporting advisers (ERAs). In conjunction with this proposal, FinCEN is withdrawing a 2015 proposal that involved applying BSA requirements to RIAs.

Because investment advisers provide services to open-end investment companies such as mutual funds, which are already defined as “financial institutions” under the BSA, the proposed rule would not require investment advisers to apply AML/CFT program or suspicious activity filing requirements to mutual funds they advise.

FinCEN is not currently proposing a customer identification program requirement or an obligation for investment advisers to collect beneficial ownership information for legal entity customers. However, FinCEN anticipates addressing both in subsequent rulemakings.

The NPRM is open for public comment until April 15, 2024. If the proposal is finalized, covered investment advisers would be required to comply with the rule on or before 12 months from the final rule’s effective date.