Reported by Hunton Andrews Kurth LLP

(Except featured below. To read full report, go to: https://www.hunton.com/insights/legal/investment-advisers-to-launch-aml-programs-january-1-2026)

Beginning January 1, 2026, many investment advisers will be required under federal law to implement anti-money laundering (“AML”) programs.[1] These requirements are intended to deputize investment advisers to help law enforcement prevent money laundering, terrorist financing, and other illicit finance activity throughout the investment adviser industry. An investment adviser AML program must consist of (i) internal policies, procedures and controls reasonably designed to mitigate AML risk, (ii) independent testing of the investment adviser’s AML program, (iii) an AML compliance officer, (iv) ongoing AML training, and (v) appropriate risk-based procedures for conducting ongoing “customer” due diligence. Hunton has deep experience with designing, implementing and managing AML programs for other categories of financial institutions and can assist investment advisers with tailoring and rolling out their AML program in advance of the January 1, 2026 implementation date.

For more information, please see below.

Why are investment advisers required to have an AML program?

Beginning in the 1970s, Congress began passing a series of laws that collectively became known as the Bank Secrecy Act (“BSA”). These laws required banks to help law enforcement fight money laundering. Over time, these laws were extended to apply to additional categories of financial institutions, such as broker-dealers, insurance companies and money services businesses.

The Financial Crimes Enforcement Network (“FinCEN”), a federal agency that is part of the Treasury Department and has rulemaking and enforcement authority with respect to the BSA, has long sought to bring investment advisers within the federal AML framework. FinCEN first attempted to bring investment advisers under AML regulation in 2002 and 2003, when it proposed separate rules that covered unregistered and registered investment companies, respectively.[2]Both proposals met heavy opposition from investment advisers and the private fund industry, and were withdrawn in 2008. In 2015, FinCEN again proposed an AML framework for investment advisers.[3]Again, industry opposition led FinCEN to abandon its proposal. FinCEN released its third proposal for the investment adviser industry in 2024.[4]

Are all investment advisers covered by the AML requirement?

The scope of the rule is found in the definition of investment adviser (31 C.F.R. § 1010.100(nnn)).  It applies to:

(1) Any person, other than a person identified in (2), wherever located, who is registered or required to register with the SEC under section 203 of the Investment Advisers Act of 1940 (the “Act”), or any person who is exempt from SEC registration under section 203(l) (the venture capital adviser exemption) or 203(m) (the private fund adviser exemption).

(2) For the purposes of this subpart, investment adviser does not include:

1. any person who is registered or required to register with the SEC under section 203 of the Act only because such person is an investment adviser that meets the conditions of
   1. mid-sized adviser, as set forth in Section 203A(a)(2)(B) of the Act (AUM of $25-$100 million),
   2. a pension consultant, as defined under 17 CFR 275–203A–2(a), or
   3. multi-state adviser, as defined under 17 CFR 275–203A–2(d).
2. any person who is registered or required to register with the SEC under section 203 of the Act and does not report any assets under management, as defined under Section 203A(a)(3) of the Act, on its most recently filed initial Form ADV or annual updating amendment to Form ADV (17 CFR 279.1).

If you are an investment adviser that meets this definition, then the AML requirements apply to you.

How do the AML requirements for investment advisers compare with the AML requirements for other financial institutions?

The AML program requirements for investment advisers are based on, and largely identical to, the AML requirements for banks and many other categories of financial institutions. Accordingly, hiring BSA officers and other AML compliance personnel from outside of the investment adviser industry may help investment advisers fulfill their AML compliance obligations.

What does an investment adviser AML program consist of?

Other financial institutions frequently refer to AML programs as consisting of five pillars:

1. Internal controls;
2. Independent testing;
3. AML Officer;
4. AML training; and
5. Customer due diligence.

Investment adviser AML programs are required to have these same five pillars as part of their AML program. Investment advisers must also have suspicious activity reporting processes as part of its AML program.

Notably, investment adviser AML programs are not required to have a customer identification program (“CIP”) or collect beneficial ownership data and information for legal entity customers (these two requirements apply to other categories of financial institutions). However, it is likely that these requirements will be implemented through other rulemakings.[5]

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[1] Anti-Money Laundering/Countering the Financing of Terrorism Program and Suspicious Activity Report Filing Requirements for Registered Investment Advisers and Exempt Reporting Advisers, 89 Fed. Reg. 72,156,  (Sept. 4, 2024).

[2] Anti-Money Laundering Programs for Unregistered Investment Companies, 67 Fed. Reg. 60,617 (Sept. 26, 2002). Anti-Money Laundering Programs for Investment Advisers, 68 Fed. Reg. 23,646 (May 5, 2003).

[3] Anti-Money Laundering Program and Suspicious Activity Report Filing Requirements for Registered Investment Advisers, 80 Fed. Reg. 52,680 (Sept. 1, 2015).

[4] Anti-Money Laundering/Countering the Financing of Terrorism Program and Suspicious Activity Report Filing Requirements for Registered Investment Advisers and Exempt Reporting Advisers, 89 Fed. Reg. 12,108 (Feb. 15, 2024).

[5] See Customer Identification Programs for Registered Investment Advisers and Exempt Reporting Advisers, 89 Fed. Reg. 44,571 (May 21, 2024).