12108 Federal Register / Vol. 89, No. 32 / Thursday, February 15, 2024 / Proposed Rules 

1Section 6101 of the AML Act, codified at 31 

U.S.C. 5318(h), amended the BSA’s requirement 

that financial institutions implement AML 

programs to also combat terrorist financing. This 

NPRM refers to ‘‘AML program’’ when discussing 

the obligation prior to the enactment of the AML 

Act, and to ‘‘AML/CFT program’’ in reference to the 

current obligation contained in the BSA and the 

proposed rule. 

2See infra section IV.E3 and n. 51. 

3 31 U.S.C. 5312(a)(2)(Y). 

4 15 U.S.C. 80b–1 et seq. 

5See FinCEN, Anti-Money Laundering Program 

and Suspicious Activity Report Filing Requirements 

for Registered Investment Advisers, 80 FR 52680 

(Sept. 1, 2015). 

6As described below, FinCEN does not propose 

to permit investment advisers to exempt mutual 

funds that they advise from the requirements of 31 

CFR part 1010, subparts E and F (31 CFR 1010.520, 

540, 600–670) that FinCEN proposes to apply to 

covered investment advisers in the proposed rule 

(e.g., certain information sharing, special standards, 

prohibitions, and other requirements). 

7 31 CFR 1010.330(a)(1)(i), (e)(1); 26 CFR 1.6050I– 

1(e). 

DEPARTMENT OF THE TREASURY 

Financial Crimes Enforcement Network 

31 CFR Parts 1010 and 1032 

RIN 1506–AB58 

Financial Crimes Enforcement 

Network: Anti-Money Laundering/ 

Countering the Financing of Terrorism 

Program and Suspicious Activity 

Report Filing Requirements for 

Registered Investment Advisers and 

Exempt Reporting Advisers 

AGENCY: Financial Crimes Enforcement 

Network (FinCEN), Treasury. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: FinCEN, a bureau of the U.S. 

Department of the Treasury (Treasury), 

is issuing this notice of proposed 

rulemaking (NPRM) to include certain 

investment advisers in the definition of 

‘‘financial institution’’ under the Bank 

Secrecy Act (BSA), prescribe minimum 

standards for anti-money laundering/ 

countering the financing of terrorism 

(AML/CFT) programs to be established 

by covered investment advisers, require 

covered investment advisers to report 

suspicious activity to FinCEN pursuant 

to the BSA, and make several other 

related changes to FinCEN regulations. 

FinCEN is proposing this action to 

address gaps in the existing AML/CFT 

regulatory framework in this sector. The 

proposed regulations will apply to 

investment advisers that may be at risk 

for misuse by money launderers, 

terrorist financers, or other actors who 

seek access to the U.S. financial system 

for illicit purposes via investment 

advisers and threaten U.S. national 

security. 

DATES: Written comments on this notice 

of proposed rulemaking (NPRM) must 

be submitted on or before April 15, 

2024. 

ADDRESSES: Comments may be 

submitted by any of the following 

methods: 

• Federal E-Rulemaking Portal: 

http://www.regulations.gov. Follow the 

instructions for submitting comments. 

Refer to Docket Number FINCEN–2024– 

0006 and RIN 1506–AB58. 

• Mail: Policy Division, Financial 

Crimes Enforcement Network, P.O. Box 

39, Vienna, VA 22183. Refer to Docket 

Number FINCEN–2024–0006 and RIN 

1506–AB58. 

Please submit comments by one 

method only. 

FOR FURTHER INFORMATION CONTACT: The 

FinCEN Resource Center at (800) 767– 

2825 or email frc@fincen.gov. 

SUPPLEMENTARY INFORMATION: 

I. Executive Summary 

To address illicit finance risks in the 

investment adviser industry, FinCEN is 

proposing to apply certain AML/CFT 

requirements to certain investment 

advisers. Currently, there are no Federal 

or State regulations requiring 

investment advisers to maintain AML/ 

CFT programs 1 or records under the 

BSA, although some investment 

advisers may do so, for example, if they 

are also licensed as banks (or are bank 

subsidiaries), registered as brokerdealers, or advise mutual funds.2 This 

means that thousands of investment 

advisers overseeing the investment of 

tens of trillions of dollars into the U.S. 

economy currently operate without 

legally binding AML/CFT obligations. 

These proposed regulations aim to 

close this gap by amending chapter X of 

title 31 of the Code of Federal 

Regulations to add ‘‘investment adviser’’ 

to the definition of ‘‘financial 

institution’’ at 31 CFR 1010.100(t). 

FinCEN has statutory authority to define 

additional types of businesses as 

financial institutions where it 

determines that such businesses engage 

in any activity ‘‘similar to, related to, or 

a substitute for’’ those in which any of 

the businesses listed in the statutory 

definition are authorized to engage.3

FinCEN proposes to make such a 

determination with respect to 

investment advisers, which would be 

defined to include two types of advisers: 

those that are (1) registered or required 

to register with the U.S. Securities and 

Exchange Commission (SEC, and, such 

investment advisers, RIAs) and (2) 

investment advisers that report to the 

SEC as Exempt Reporting Advisers 

(ERAs) pursuant to the Investment 

Advisers Act of 1940, as amended 

(Advisers Act),4 and the rules 

thereunder. 

Accordingly, this proposed rule 

would establish AML/CFT requirements 

for RIAs and ERAs. In full, the proposed 

rule would require RIAs and ERAs to 

implement an AML/CFT program, file 

Suspicious Activity Reports (SARs) with 

FinCEN, keep records relating to the 

transmittal of funds (Recordkeeping and 

Travel Rule), and other obligations of 

financial institutions under the BSA. 

The proposed rule would also apply 

information-sharing provisions between 

and among FinCEN, law enforcement 

government agencies, and certain 

financial institutions, and would subject 

investment advisers to the ‘‘special 

measures’’ imposed by FinCEN 

pursuant to section 311 of the USA 

PATRIOT Act. 

Concurrent with this proposal, 

FinCEN is withdrawing the 2015 

proposed rule that would have applied 

AML program, SAR filing, and other 

AML/CFT requirements to RIAs.5

In this rulemaking, FinCEN is not 

proposing to include a customer 

identification program (CIP) 

requirement, nor is it proposing to 

include within the AML/CFT program 

requirements an obligation to collect 

beneficial ownership information for 

legal entity customers at this time. 

FinCEN anticipates addressing CIP via a 

future joint rulemaking with the SEC 

and addressing the requirement to 

collect beneficial ownership 

information for legal entity customers in 

subsequent rulemakings. 

Moreover, because mutual funds are 

already defined as ‘‘financial 

institutions’’ under the BSA (31 CFR 

1010.100(t)(10)), and because of the 

regulatory and practical relationship 

between mutual funds and their 

investment advisers, the proposed 

regulations would also not require 

investment advisers to apply AML/CFT 

program or SAR reporting requirements 

to mutual funds.6 The proposed 

regulations would also remove the 

existing requirement that investment 

advisers file reports for the receipt of 

more than $10,000 in cash and 

negotiable instruments using the joint 

FinCEN/Internal Revenue Service Form 

8300 (Form 8300).7 Investment advisers 

would instead be required to file a 

Currency Transaction Report (CTR) for a 

transaction involving a transfer of more 

than $10,000 in currency by, through, or 

to the investment adviser, unless subject 

to an applicable exemption. 

Finally, FinCEN is proposing to 

delegate its examination authority to the 

SEC given the SEC’s expertise in the 

regulation of investment advisers and 


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8 31 CFR 1010.810(b)(6). 

9See 31 U.S.C. 5311. Certain parts of the 

Currency and Foreign Transactions Reporting Act, 

its amendments, and the other statutes relating to 

the subject matter of that Act, have come to be 

referred to as the BSA. The BSA is codified at 12 

U.S.C. 1829b, 12 U.S.C. 1951–1960, and 31 U.S.C. 

5311–5314 and 5316–5336, and includes notes 

thereto. 

10 31 U.S.C. 5311(3). 

11 31 U.S.C. 5311(1). 

12Treasury Order 180–01, paragraph 3(a) (Jan. 14, 

2020), available at https://home.treasury.gov/about/ 

general-information/orders-and-directives/treasuryorder-180-01. 

13 31 U.S.C. 5312(a)(2)(Y). 

14 31 U.S.C. 5318(h)(1), (2). 

15 31 U.S.C. 5318(g)(1). 

16See Uniting and Strengthening America by 

Providing Appropriate Tools Required to Intercept 

and Obstruct Terrorism Act of 2001 (USA PATRIOT 

Act), Public Law 107–56, sec. 314(a), (b). 

17See 12 U.S.C. 1953; 31 U.S.C. 5318(a)(2). 

18This proposed rule uses the term ‘‘customers’’ 

for those natural and legal persons who enter into 

an advisory relationship with an investment 

adviser. This is consistent with the terminology in 

the BSA and FinCEN’s implementing regulations. 

FinCEN acknowledges that the Advisers Act and its 

implementing regulations primarily use the term 

‘‘clients,’’ and so that term is used in specific 

reference to Advisers Act requirements; otherwise, 

the term ‘‘customers’’ is used. 

19An adviser has discretionary authority or 

manages assets on a discretionary basis if it has the 

authority to decide which securities to purchase 

and sell for the client. An adviser also has 

discretionary authority if it has the authority to 

decide which investment advisers to retain on 

behalf of the client. See Glossary to Form ADV, 

general Instructions at p. 28, available at https://

www.sec.gov/about/forms/formadv-instructions.pdf. 

According to the Investment Advisers Association 

(IAA), as of 2021, over 90 percent of RIAs manage 

client assets on a discretionary basis. Investment 

Adviser Association, Investment Adviser Industry 

Snapshot 2022, p. 53 (IAA Snapshot), available at 

https://investmentadviser.org/wp-content/uploads/ 

2022/06/Snapshot2022.pdf. 

20See Part 1A, Item 5 of Form ADV for a list of 

examples of different types of advisory clients. 

21See Part 1A, Item 3.A of Form ADV. 

22See generally 15 U.S.C. 80a–1 et seq. 

(Investment Company Act of 1940 (Investment 

Company Act)); 15 U.S.C. 77a et seq. (Securities Act 

of 1933); 15 U.S.C. 78a et seq. (Securities and 

Exchange Act of 1934). 

23See 15 U.S.C. 80a–3 (defining investment 

company). If an investment company meets the 

definition of an investment company under 15 

U.S.C. 80a–3 and cannot rely on an exception or an 

exemption from registration, generally it must 

register with the SEC under the Investment 

Company Act and must register its public offerings 

under the Securities Act. 

24 Investment advisers with more than $100 

million assets under management may register with 

the SEC, and investment advisers with more than 

$110 million in assets under management must 

register with the SEC, unless eligible for an 

exception. See 17 CFR 275.203A–1. 

the existing delegation to the SEC of 

authority to examine brokers and 

dealers in securities (broker-dealers) and 

certain investment companies.8

This NPRM is divided into six main 

sections including this executive 

summary in section I. Section II 

provides background on the existing 

AML/CFT regulatory framework; the 

illicit finance risks that this rulemaking 

will address; the SEC’s regulatory 

framework for investment advisers; the 

limited extent to which certain RIAs 

and ERAs may already implement AML/ 

CFT measures; and a summary of past 

proposed rules to apply AML/CFT 

obligations with respect to investment 

advisers. Section III discusses the scope 

of the proposed rule. Section IV 

includes the section-by-section analysis 

of the elements of the proposed rule. 

Section V lays out questions on which 

FinCEN seeks comment, and section VI 

addresses the severability of the 

proposed rule’s requirements. Section 

VII includes the Regulatory Analysis 

required by relevant statutes and 

executive orders. 

II. Background 

A. Current BSA Framework 

Enacted in 1970, the Currency and 

Foreign Transactions Reporting Act, 

generally referred to as the BSA, is 

designed to combat money laundering, 

the financing of terrorism, and other 

illicit financial activity, and to safeguard 

the national security of the United 

States.9 This includes ‘‘through the 

establishment by financial institutions 

of reasonably designed risk-based 

programs to combat money laundering 

and the financing of terrorism.’’10 The 

Treasury Secretary is authorized to 

administer the BSA and to require 

financial institutions to keep records 

and file reports that ‘‘are highly useful 

in . . . criminal, tax, or regulatory 

investigations, risk assessments, or 

proceedings’’ or ‘‘intelligence or 

counterintelligence activities, including 

analysis, to protect against international 

terrorism.’’ 11 The Secretary delegated 

the authority to implement, administer, 

and enforce the BSA and its 

implementing regulations to the 

Director of FinCEN.12

Pursuant to this authority, FinCEN 

may define a business or agency as a 

‘‘financial institution’’ if it engages in 

any activity determined by regulation 

‘‘to be an activity which is similar to, 

related to, or a substitute for any 

activity’’ in which a ‘‘financial 

institution’’ as defined by the BSA is 

authorized to engage.13 Additionally, 

the BSA requires financial institutions 

to maintain programs to combat money 

laundering and the financing of 

terrorism and authorizes the Secretary— 

and thereby FinCEN—to issue 

regulations prescribing ‘‘minimum 

standards’’ for such AML/CFT 

programs.14 Similarly, under the BSA, 

FinCEN may require financial 

institutions to ‘‘report any suspicious 

transactions relevant to a possible 

violation of law or regulation.’’ This 

provision authorizes FinCEN to require 

the filing of SARs.15 FinCEN also has 

authority under the BSA to authorize 

the sharing of financial information by 

financial institutions 16 in specified 

circumstances, and to require financial 

institutions to keep records and 

maintain procedures to ensure 

compliance with the BSA and its 

implementing regulations or to guard 

against money laundering.17

B. Investment Adviser Industry and 

Regulation 

1. Investment Adviser Industry 

The investment adviser industry in 

the United States consists of a wide 

range of business models geared 

towards providing advisory services to 

many different types of customers.18

Some of the advisory services that 

investment advisers may provide 

include portfolio management, financial 

planning, and pension consulting. 

Advisory services can be provided on a 

‘‘discretionary’’ or ‘‘non-discretionary’’ 

basis.19 Investment advisers provide 

their expertise to a wide range of 

customers, including retail investors, 

high-net-worth individuals, private 

institutions, and governmental entities 

(including local, State, and foreign 

government funds).20 Investment 

advisers often work closely with their 

customers to formulate and implement 

their customers’ investment decisions 

and strategies. Investment advisers may 

be organized in a variety of legal forms, 

including corporations, sole 

proprietorships, partnerships, or limited 

liability companies.21

The Advisers Act and its 

implementing rules and regulations 

form the primary framework governing 

advisory activity, along with other 

Federal securities laws and their 

implementing rules and regulations, 

such as the Investment Company Act of 

1940, the Securities Act of 1933, and the 

Securities Exchange Act of 1934.22

Since the Advisers Act was amended in 

1996 and 2010, generally only 

investment advisers who have at least 

$100 million in assets under 

management (AUM) or advise a 

registered investment company 23 may 

register with the SEC.24 Other 

investment advisers typically register 

with the State in which the adviser 

maintains its principal place of 

business. 

SEC-Registered Investment Advisers. 

Unless eligible to rely on an exception, 


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25See id.; 17 CFR 275.204–1. Investment advisers 

register with the SEC by filing Form ADV and are 

required to file periodic updates. Form ADV is 

available at https://www.sec.gov/files/formadv.pdf. 

A detailed description of Form ADV’s requirements 

is available at https://www.sec.gov/oiea/investoralerts-bulletins/ib_formadv.html. 

26The number of RIAs and corresponding AUM, 

and the number of ERAs, are based on a Treasury 

review of Form ADV information filed as of July 31, 

2023. This Form ADV data is available at 

Frequently Requested FOIA Document: Information 

About Registered Investment Advisers and Exempt 

Reporting Advisers, http://www.sec.gov/foia/docs/ 

invafoia.htm. The $125 trillion in AUM includes 

approximately $22 trillion in assets managed by 

mutual funds, which are advised by RIAs and are 

subject to AML/CFT obligations under the BSA and 

its implementing regulations. 

27An adviser that is eligible to file reports as an 

ERA may nonetheless elect to register with the SEC 

as an RIA so long as it meets the criteria for 

registration. An investment adviser that relies on 

one of these exemptions must still evaluate the 

need for State registration. 

28Form ADV uses the term ‘‘regulatory assets 

under management’’ (RAUM) instead of ‘‘assets 

under management.’’ Form ADV describes how 

advisers must calculate RAUM and states that in 

determining the amount of RAUM, an adviser 

should ‘‘include the securities portfolios for which 

[it] provide[s] continuous and regular supervisory 

or management services as of the date of filing’’ the 

form. See Form ADV, Instructions for Part 1A, 

Instruction 5.b. 

29See sections 203(l) and 203(m) of the Advisers 

Act and 17 CFR 275.203(m)–1, respectively. ERAs 

are exempt from registration with the SEC, but are 

required to file reports on Form ADV with the SEC 

and are subject to certain rules under the Advisers 

Act. 

30Section 202(a)(29) of the Advisers Act defines 

the term ‘‘private fund’’ as an issuer that would be 

an investment company, as defined in section 3 of 

the Investment Company Act (15 U.S.C. 80a–3), but 

for section 3(c)(1) or 3(c)(7) of that Act. Section 

3(c)(1) excludes from the definition of investment 

company a privately-offered issuer having fewer 

than a certain number of beneficial owners. Section 

3(c)(7) excludes from the definition of investment 

company a privately-offered issuer the securities of 

which are owned exclusively by ‘‘qualified 

purchasers’’ (generally, persons and entities owning 

a specific amount of investments). 

31The number of ERAs is derived from a Treasury 

review of Form ADV information filed as of July 31, 

2023. See supra n. 26. 

32Based on a Treasury review of Form ADV 

information filed as of July 31, 2023. See supra n. 

26. 

33See 17 CFR 275.203(l)–1 (defining ‘‘venture 

capital fund’’). 

34Certain venture capital advisers may be 

registered with the SEC if they no longer satisfy the 

criteria to be ERAs (e.g., they no longer pursue a 

venture capital strategy (by seeking to hold 

securities in companies past the initial public 

offering stage or pursuing hedge-fund like 

investment strategies)) or otherwise opt to register 

with the SEC. 

35Based on a Treasury review of Form ADV 

information filed as of July 31, 2023. See supra n. 

26. 

36See 17 CFR 275.203A–2. Other exceptions to 

the prohibition on SEC registration include: (1) an 

adviser that would be required to register with 15 

or more States (the multi-State exemption); (2) an 

adviser advising a registered investment company; 

(3) an adviser affiliated with an RIA; and (4) a 

pension consultant. Persons satisfying these criteria 

and the definition of ‘‘investment adviser’’ may 

register as such with the SEC. Investment advisers 

with a principal office and place of business in New 

York and over $25 million AUM are required to 

register with the SEC. 

37See North American Security Administrators 

Association, NASAA Investment Adviser Section 

2023 Annual Report, p.3, https://www.nasaa.org/ 

wp-content/uploads/2023/09/2023-IA-SectionReport-FINAL.pdf. 

38The ‘‘foreign private adviser’’ exemption is 

available to an adviser that (i) has no place of 

business in the United States; (ii) has, in total, fewer 

than 15 clients in the United States and investors 

in the United States in private funds advised by the 

adviser; (iii) has aggregate assets under management 

attributable to these clients and investors of less 

than $25 million; and (iv) does not hold itself out 

generally to the public in the United States as an 

investment adviser. See 15 U.S.C. 80b–2(a)(30), 

80b–3(b)(3). 

39See SEC, Exemptions for Advisers to Venture 

Capital Funds, Private Fund Advisers With Less 

Than $150 Million in Assets Under Management, 

and Foreign Private Advisers, Final Rule, 

Investment Advisers Act Release No. 3222 (Jun. 22, 

2011), 76 FR 39645, 39667 (Jul. 6, 2011). 

40For instance, an investment adviser may be 

exempt from both Federal and State registration 

requirements if they had less than $25 million AUM 

and fewer than six clients in a State. These advisers 

are not required to register, nor are they ERAs. 

investment advisers that manage more 

than $110 million AUM must register 

with the SEC, as well as submit a Form 

ADV and update it at least annually.25

The SEC administers and enforces the 

Federal securities laws applicable to 

RIAs. As of July 31, 2023, there were 

15,391 RIAs, reporting approximately 

$125 trillion in AUM for their clients.26

Exempt Reporting Advisers. An ERA 

is an investment adviser that would be 

required to register with the SEC but is 

statutorily exempt from such 

requirement 27 because: (1) it is an 

adviser solely to one or more venture 

capital funds; or (2) it is an adviser 

solely to one or more private funds and 

has less than $150 million AUM 28 in 

the United States.29 Private funds are 

privately offered investment vehicles 

that pool capital from one or more 

investors to invest in securities and 

other investments.30 Private funds do 

not register with the SEC, and advisers 

to these funds often categorize the fund 

by the investment strategy they pursue. 

These include hedge funds, private 

equity funds, and venture capital funds, 

among others. Even though they are not 

required to register, ERAs must still file 

an abbreviated Form ADV with the SEC, 

and the SEC maintains authority to 

examine ERAs. As of July 31, 2023, 

there were 5,846 ERAs that were exempt 

from registering with the SEC but had 

filed an abbreviated Form ADV.31

• Private Fund Advisers. Private fund 

advisers, a type of ERA, are exempt from 

registering with the SEC if they 

exclusively advise private funds and 

have less than $150 million AUM in the 

United States. As of July 31, 2023, there 

were approximately 4,400 exempt 

private fund advisers, approximately 

500 of which were also venture capital 

advisers.32

• Venture Capital Advisers. Venture 

capital advisers, another type of ERA, 

are exempt from registering with the 

SEC if they provide services only to 

venture capital funds,33 regardless of the 

amount of AUM.34 As of July 31, 2023, 

there were approximately 2,000 exempt 

venture capital advisers, approximately 

500 of which were also private fund 

advisers.35

State-Registered Investment Advisers. 

State-registered investment advisers 

generally have less than $100 million in 

AUM. State-registered investment 

advisers are generally prohibited from 

registering with the SEC and instead 

register with and are supervised by the 

relevant State authority, unless they 

meet certain exceptions or their State 

does not supervise these entities.36

State-registered investment advisers also 

file a Form ADV, which they submit to 

the relevant State regulator. As of 

December 31, 2022, there were 17,063 

State-registered investment advisers 

who have approximately $420 billion in 

AUM.37

Non-U.S. Investment Advisers. NonU.S. advisers whose principal offices 

and places of business are outside the 

United States, but solicit or advise ‘‘U.S. 

persons,’’ are subject to the Advisers Act 

and must register with the SEC unless 

eligible for an exception. One of those 

exceptions is the ‘‘foreign private 

adviser’’ exemption, and an adviser 

relying on this exemption is not 

required to make any filing with the 

SEC.38 For those non-U.S. advisers 

registered with the SEC, the 

Commission states that it does not 

intend to seek to apply the substantive 

provisions of the Advisers Act to a nonU.S. adviser that is registered with the 

SEC with respect to its non-U.S. 

clients.39 Non-U.S. advisers may also 

report to the SEC as ERAs if they meet 

the requirements to report as ERAs. 

2. Existing Regulatory Framework for 

Investment Advisers 

Oversight of the investment adviser 

industry by Federal and State securities 

regulators generally is focused on 

protecting investors and the overall 

securities market from fraud and 

manipulation. Most investment advisers 

are subject to certain reporting 

requirements and the extent of those 

requirements depends on whether the 

investment adviser is an RIA, registered 

at the State level, exempt from 

registration as an ERA, or otherwise not 

required to register with a Federal or 

State securities regulator.40 RIAs are 

subject to various SEC rules and 


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41See, e.g., Cal. Corp. Code, Ch.3, 25230–25238. 

42For instance, FinCEN research identified two 

investment advisers with a focus on Russian 

customers that advertised investment structures 

that would allow customers to avoid going through 

‘‘know your customer’’ procedures. 

43See 17 CFR 275.203–1 and 204–4. 

44Advisers to private funds are, however, 

required to name their private fund clients on 

section 7.B.(2) of Schedule D of Form ADV Part 1A. 

In some cases, those names may be coded. 

45See 15 U.S.C. 80b–4(b). A Form PF must be 

submitted by any RIA that manages one or more 

private funds and collectively (with its related 

persons) had at least $150 million in private fund 

AUM as of the last day of its most recently 

completed fiscal year. See 17 CFR 275.204(b)–1. 

‘‘Related person’’ is defined in Form PF, which is 

available at https://www.sec.gov/files/formpf.pdf. 

46See 17 CFR 275.204(b)–1. 

47See, e.g., FinCEN and Federal Functional 

Regulators (including SEC,), Joint Release, 

‘‘Guidance on Obtaining and Retaining Beneficial 

Ownership Information’’ (Mar. 5, 2010) (noting that 

customer due diligence procedures for legal entity 

customers may include ‘‘obtaining information 

about the structure or ownership of the entity so as 

to allow the [financial] institution to determine 

whether the account poses heightened risk.’’) 

48 Generally, money laundering involves three 

stages, known as placement, layering, and 

integration. At the ‘‘placement’’ stage, proceeds 

from illegal activity or funds intended to promote 

illegal activity are first introduced into the financial 

system. The ‘‘layering’’ stage involves the 

distancing of illegal proceeds from their criminal 

source through a series of financial transactions to 

obfuscate and complicate their traceability. 

‘‘Integration’’ occurs when illegal proceeds 

previously placed into the financial system are 

made to appear to have been derived from a 

legitimate source. 

49See 31 CFR 1010.100(t). 

50 Investment advisers are, like any other 

‘‘person,’’ subject to an obligation to file Form 8300. 

31 CFR 1010.330(a)(1)(i), (e)(1); 26 CFR 1.6050I– 

1(e). 

regulations governing, among other 

things, their marketing and disclosures 

to clients, best execution for client 

transactions, and disclosures of conflicts 

of interest and disciplinary information. 

State-registered investment advisers 

may have similar requirements under 

State securities laws and regulations.41

Investment advisers, depending on their 

registration status, are also generally 

subject to examination by the SEC or 

State securities regulators. In some 

circumstances, Federal securities, tax, or 

other rules and regulations may impose 

on investment advisers information 

collection or disclosure obligations 

similar to some AML/CFT measures. 

However, these requirements are not 

designed to address money laundering, 

terrorist financing, and other illicit 

financial activity risks associated with 

investment advisers. Further, although 

some investment advisers implement 

AML/CFT requirements in certain 

circumstances or for certain customers, 

as described below in section II.C, 

application of AML/CFT measures is 

not uniform across the industry, and 

investment advisers’ implementation of 

such measures is not subject to 

comprehensive enforcement or 

examination. Providers of the same 

financial services may be subject to 

different AML/CFT obligations (if any), 

and an investor or customer seeking to 

obscure the origin of its funds or 

identity can choose an investment 

adviser that does not apply AML/CFT 

measures to its customers and 

activities.42

Generally, RIAs, State-registered 

investment advisers, and ERAs are 

required to file (and annually update) 

Form ADV with the SEC, the relevant 

State securities regulator, or both.43

Form ADV collects certain information 

about the adviser, including (depending 

on the adviser’s registration status) its 

AUM, ownership, number of clients, 

number of employees, business 

practices, custodians of client funds, 

and affiliations, as well as certain 

disciplinary or material events of the 

adviser or its employees. ERAs who are 

not registered with the SEC or a State 

securities regulator are only required to 

file an abbreviated version of Form 

ADV—they are required to answer fewer 

client-related questions and provide less 

information about the services they 

provide. Form ADV does not require 

investment advisers to disclose the 

names of individual clients or 

investors.44

Some RIAs are also required to file a 

Form PF, which collects information on 

private funds advised by the RIA.45

Information collected on Form PF 

includes the approximate percentage of 

a fund’s equity that is beneficially 

owned by different types of investors, 

including U.S. and non-U.S. investors. 

Some private fund advisers, including 

ERAs, that are required to report on 

Form ADV are not required to file Form 

PF.46 Unlike Form ADV, Form PF is 

non-public. It is provided to both the 

SEC and the Financial Stability 

Oversight Council (FSOC) and is 

intended to enhance investor protection 

and provide the FSOC with data for use 

in assessing systemic risk. 

C. Illicit Finance Risk Associated With 

Investment Advisers 

As detailed below, Treasury assesses 

that RIAs and ERAs pose a material risk 

of misuse for illicit finance. Including 

investment advisers as ‘‘financial 

institutions’’ under the BSA and 

applying comprehensive AML/CFT 

measures to these investment advisers 

are likely to reduce this risk. 

1. Illicit Finance Vulnerabilities 

RIAs and ERAs are vulnerable to 

misuse or exploitation by criminals or 

other illicit actors for several reasons. 

First, the lack of comprehensive AML/ 

CFT regulations directly and 

categorically applicable to investment 

advisers means they, as a whole, are not 

required to understand their customers’ 

ultimate sources of wealth or identify 

and report potentially illicit activity to 

law enforcement. The current 

patchwork of implementation by some 

RIAs and ERAs may also create arbitrage 

opportunities for illicit actors by 

allowing them to find RIAs and ERAs 

with weaker or non-existent customer 

diligence procedures when these actors 

seek to access the U.S. financial system. 

Second, where AML/CFT obligations 

apply to investment adviser activities, 

the obliged entities (such as custodian 

banks, broker-dealers, and fund 

administrators providing services to 

investment advisers and the private 

funds that they advise) do not 

necessarily have a direct relationship 

with the customer or, in the private 

fund context, underlying investor in the 

private fund. Further, these entities may 

be unable to collect relevant investor 

information from the RIA or ERA to 

comply with the entities’ existing 

obligations 47 (either because the adviser 

is unwilling to provide, or has not 

collected, such information). Third, the 

existing Federal securities laws are not 

designed to comprehensively detect 

illicit proceeds or other illicit activity 

that is ‘‘integrating’’ into the U.S. 

financial system 48 through an RIA or 

ERA. Fourth, RIAs and ERAs routinely 

rely on third parties for administrative 

and compliance activities, and these 

entities are subject to varying levels of 

AML/CFT regulation. Fifth, particularly 

for private funds, it is routine for 

investors to invest through layers of 

legal entities that may be registered or 

organized outside of the United States, 

making it challenging to collect 

information relevant to understand 

illicit finance risk under existing 

frameworks. 

(a) Lack of Comprehensive and Uniform 

AML/CFT Obligations 

‘‘Investment advisers’’ is not presently 

included in the definition of ‘‘financial 

institution’’ under the BSA or its 

implementing regulations.49 This means 

that, although they have Form 8300 

obligations to report cash transactions 

above $10,000, investment advisers are 

typically not subject to most of the 

AML/CFT program, recordkeeping, or 

reporting obligations that apply to 

banks, broker-dealers, and certain other 

financial institutions.50 For example, 

investment advisers are not required to 

maintain an AML/CFT program 


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51 Investment advisers that are banks (or bank 

subsidiaries) subject to the jurisdiction of the Office 

of the Comptroller of the Currency, the Board of 

Governors of the Federal Reserve System, the 

Federal Deposit Insurance Corporation, and the 

National Credit Union Administration (collectively, 

the FBAs) are accordingly also subject to applicable 

FBA regulations imposing AML/CFT requirements 

on banks. See, e.g., 12 CFR 5.34(e)(3) and 5.38(e)(3) 

(OCC requirements governing operating subsidiaries 

of national banks and Federal savings associations). 

52See SEC, Letter to Mr. Bernard V. Canepa, 

Associate General Counsel, Securities Industry and 

Financial Markets Association (SIFMA), Request for 

No-Action Relief Under Broker-Dealer Customer 

Identification Program Rule (31 CFR 1023.220) and 

Beneficial Ownership Requirements for Legal Entity 

Customers (31 CFR 1010.230) (Dec. 9, 2022), 

https://www.sec.gov/files/nal-sifma-120922.pdf 

(SIFMA No-Action Letter). This request for NoAction Relief was originally issued in 2004 and has 

been periodically reissued and remains effective. 

Any SEC staff statements cited represent the views 

of the SEC staff. They are not a rule, regulation, or 

statement of the SEC. Furthermore, the SEC has 

neither approved nor disapproved their content. 

These SEC staff statements, like all SEC staff 

statements, have no legal force or effect: they do not 

alter or amend applicable law; and they create no 

new or additional obligations for any person. 

53As used in this NPRM, ‘‘mutual fund’’ has the 

same definition as in FinCEN’s regulations, and 

refers to an ‘‘investment company’’ (as the term is 

defined in section 3 of the Investment Company Act 

(15 U.S.C. 80a–3)) that is an ‘‘open-end company’’ 

(as that term is defined in section 5 of the 

Investment Company Act (15 U.S.C. 80a–5)) that is 

registered or is required to register with the SEC 

under section 8 of the Investment Company Act (15 

U.S.C. 80a–8). See 31 CFR 1010.100(gg). Exchangetraded funds (ETFs) are a type of exchange-traded 

investment product that must register with the SEC 

under the Investment Company Act and are 

generally organized as either an open-end company 

(‘‘open-end fund’’) or unit investment trust. The 

SEC’s ETF Rule (rule 6c-11 under the Investment 

Company Act), issued in 2019, clarified ETFs are 

issuing ‘‘redeemable securit[ies]’’ and are generally 

‘‘regulated as open-end funds within the meaning 

of section 5(a)(1) of the [Investment Company] Act.’’ 

FinCEN’s definition of a mutual fund under 

1010.100(gg) applies to an ETF that is registered as 

an ‘‘open-end company’’ (as the term is defined in 

section 5 of the Investment Company Act).’’ 

54 Information derived from a Treasury review of 

Form ADV information. See supra n. 26. 

55According to the Investment Company Institute 

2023 Investment Company Factbook, as of 

December 31, 2022, U.S. mutual funds held 

approximately $22.1 trillion in AUM, while ETFs 

held approximately $6.4 trillion in AUM. 

Investment Company Institute, 2023 Investment 

Company Factbook, p.2, https://www.ici.org/ 

system/files/2023-05/2023-factbook.pdf. 

56See 31 CFR 1010.100(gg); 31 CFR part 1024. 

57 31 U.S.C. 5318(g)(3)(A). 

58See 31 CFR 1010.520. 

59See 31 CFR 1010.540. 

(consisting of internal controls, an 

AML/CFT officer, independent testing, 

and employee training), and do not have 

independent SAR filing, customer due 

diligence (CDD), or CIP obligations. 

These are key elements of AML/CFT 

compliance through which an 

investment adviser would identify and 

report to law enforcement and 

regulators a customer, investor, or 

transaction that may be associated with 

illicit finance activity. 

As noted above, some RIAs and ERAs 

may perform certain AML/CFT 

functions if the entity is also a registered 

broker-dealer or is a bank (i.e., a dual 

registrant), or is an operating subsidiary 

of a bank;51 other investment advisers 

are affiliates of banks or broker-dealers, 

which may implement an enterprisewide AML/CFT program that would 

include that investment adviser. A 

Treasury analysis of Form ADV data 

found that approximately three percent 

of RIAs were dually registered as a 

broker-dealer or licensed as a bank, and 

that these entities held about 10 percent 

of the AUM held by all RIAs. The same 

analysis found that approximately 20 

percent of RIAs, representing 

approximately 75 percent of the total 

AUM of RIAs, were affiliated with either 

a bank or broker-dealer. 

In other circumstances, an investment 

adviser may perform AML/CFT 

functions via contract with a brokerdealer (e.g., CIP for joint customers) or 

other financial institution, such as when 

the adviser advises an open-end 

registered investment company (e.g., 

mutual fund). For instance, some RIAs 

have already implemented voluntary 

AML/CFT programs pursuant to the 

Securities Industry and Financial 

Markets Association (SIFMA) No-Action 

Letter under which the staff of the SEC’s 

Division of Trading and Markets stated 

that it would not recommend 

enforcement action if a broker-dealer 

relies on RIAs to perform some or all 

aspects of the broker-dealer’s CIP 

obligations or the portion of CDD 

requirements regarding beneficial 

ownership requirements for legal entity 

customers, provided that certain 

conditions are met, including that the 

RIA implements its own AML/CFT 

program.52 Mutual funds,53 which are 

advised by approximately 10 percent of 

RIAs 54 and hold approximately $22.1 

trillion in assets,55 are also subject to 

AML/CFT obligations under the BSA 

and its implementing regulations.56

Outside of these circumstances, some 

investment advisers have voluntarily 

implemented certain AML/CFT 

measures, such as CDD or other CIP 

requirements. However, because these 

programs are not required by any 

regulations under the BSA, advisers 

have wide discretion in what 

information to request from their 

customers and private fund investors. 

Additionally, RIAs and ERAs are not 

examined for compliance with 

voluntary AML/CFT measures not 

required by law, so the adviser may not 

be made aware of deficiencies or gaps in 

their programs via examination, and 

thereafter make improvements, and 

there are more limited enforcement 

mechanisms to pursue against the 

adviser for failing to implement such 

measures. 

While the programs discussed above 

provide some AML/CFT coverage for 

parts of the investment adviser industry, 

they mean that RIAs and ERAs 

providing the same financial services 

have differing AML/CFT obligations. 

For example, depending on corporate 

policies and practice, stand-alone RIAs 

or ERAs are likely subject to different 

AML/CFT compliance approaches than 

RIAs or ERAs that are part of a bank or 

financial holding company; and an 

investor or customer seeking to obscure 

the origin of its funds or its identity can 

choose an RIA or ERA that has limited 

or no AML/CFT obligations. 

The fact that investment advisers are 

not currently BSA-defined financial 

institutions also limits the ability of 

investment advisers to provide highly 

useful information to law enforcement, 

regulators, and other relevant 

authorities. For instance, unless they are 

BSA-defined financial institutions, RIAs 

and ERAs would not be afforded the 

protection from liability (safe harbor) 

that applies to financial institutions 

when filing SARs.57 Even though 

investment advisers are able to file 

voluntary SARs, they could face 

increased legal risk from customers or 

other counterparties without the safe 

harbor. RIAs and ERAs are also 

currently unable to receive and respond 

to law enforcement requests for 

information under section 314(a) of the 

USA PATRIOT Act as they are not BSAdefined financial institutions.58

Additionally, investment advisers, or 

associations of investment advisers, that 

are not BSA-defined financial 

institutions cannot voluntarily share 

information under section 314(b) of the 

USA PATRIOT Act. Moreover, at 

present, existing BSA-defined financial 

institutions are limited in their ability to 

share with RIAs and ERAs, or receive 

from investment advisers, information 

potentially related to money laundering 

or terrorist financing that are not 

themselves BSA financial institutions.59

Becoming a BSA-defined financial 

institution would allow RIAs and ERAs 

to share information potentially related 

to money laundering or terrorist 

financing with, and receive requests 

from, other financial institutions that 

already utilize section 314(b), such as 

broker-dealers. This could help 

financial institutions gain additional 

insight into their customers’ 

transactions with RIAs and ERAs and, 


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60 17 CFR 275.206(4)–2. 17 CFR 275.206(4)–2. 

The SEC recently proposed amendments to the 

Custody Rule. See SEC, Safeguarding Advisory 

Client Assets, Investment Advisers Act Release No. 

6240 (Feb. 15, 2023), 88 FR 14672 (Mar. 9, 2023). 

61See SIFMA No-Action Letter supra n.52 

(incoming letter to SEC stating ‘‘RIAs often have the 

most direct relationship with the customers they 

introduce to broker-dealers and are best able to 

obtain the necessary documentation and 

information from and about the customers’’). 62See 17 CFR 275.206(4)–2. 

63See SIFMA No-Action Letter, supra n.520. 

64See 17 CFR 275.206(4)–7. 

65While OFAC sanctions requirements are 

separate from AML/CFT requirements, investment 

advisers, like other U.S. persons, must comply with 

OFAC sanctions. AML/CFT requirements and 

OFAC sanctions also share a common national 

security goal, apply a risk-based approach, and rely 

on similar recordkeeping and reporting 

requirements to ensure compliance. For this reason, 

many financial institutions view compliance with 

OFAC sanctions as related to AML/CFT compliance 

obligations, and may include sanctions compliance 

and AML/CFT compliance in a single enterprisewide compliance program. 

potentially, a more accurate and holistic 

understanding of their customers’ 

activities. 

(b) Existing AML/CFT Obligations Often 

Apply to Intermediaries, But Not the 

Customer-Facing Entity 

Investment advisers engage in trading 

or transactional activities on behalf of 

their customers through relationships 

with financial institutions that are 

subject to AML/CFT obligations, such as 

broker-dealers and banks, among others. 

For instance, Rule 206(4)–2 (the 

Custody Rule) under the Advisers Act 

requires RIAs that have custody of client 

funds or securities generally to maintain 

those funds and securities with a 

qualified custodian, defined primarily 

to encompass BSA-defined financial 

institutions.60

While investment advisers often do 

not take possession of financial assets, 

they nonetheless may have the most 

direct relationship with the customers 

they advise and thus be best positioned 

to obtain the necessary documentation 

and information from and about the 

customers concerning their assets that 

the investment adviser is deploying in 

public or private financial markets.61 If 

some of these assets include the 

proceeds of illegal activities, or are 

intended to further such activities, an 

investment adviser’s AML/CFT program 

could help discover such issues and 

prevent the customer from further using 

the U.S. financial system, while 

reporting such information for law 

enforcement purposes. For example, in 

some cases, an investment adviser may 

be the only person or entity with a 

complete understanding of the source of 

a customer’s invested assets, 

background information regarding the 

customer, or the objectives for which 

the assets are invested. 

Other market participants may, for 

example, hold and trade assets in an 

account controlled by an adviser, but 

these parties, as intermediaries, often 

rely solely on the investment adviser’s 

instructions and lack independent 

knowledge of the adviser’s customers. 

Further, an investment adviser may use 

multiple broker-dealers or banks for 

trading and custody services, making it 

difficult for one financial institution in 

the chain to have a complete picture of 

an investment adviser’s activity or to 

detect suspicious activity involving the 

investment adviser. Without complete 

information, such an institution may not 

have sufficient information to file a 

SAR, or it may be required to file a SAR 

that only has partial information 

concerning the investment adviser’s 

transactions on behalf of a particular 

customer. This limits the ability of law 

enforcement to identify illicit activity 

that may be occurring through 

investment advisers. 

(c) Non-AML/CFT Regulations Do Not 

Fully Address Illicit Finance Risks 

RIAs are subject to various SEC rules 

and regulations governing, among other 

things, their marketing and disclosures 

to clients, best execution for client 

transactions, and disclosures of conflicts 

of interest and disciplinary information. 

In some circumstances, Federal 

securities, tax, or other rules and 

regulations may impose obligations 

similar to some AML/CFT measures by 

requiring the collection or disclosure of 

certain information by RIAs and ERAs. 

However, these regulatory requirements 

are not designed to explicitly address 

the risk that an RIA or ERA may be used 

to move proceeds or funds tied to 

money laundering, terrorist financing, 

or other illicit activity; they are instead 

designed to protect customers against 

fraud, misappropriation, or other illegal 

conduct by an investment adviser. 

Accordingly, even if they require an RIA 

or ERA to report certain kinds of illegal 

conduct or collect relevant information, 

they do not provide a comprehensive 

framework that incorporates the AML/ 

CFT and national security purposes of 

the BSA, an understanding of relevant 

illicit finance risks and activity, and a 

process to assess and report suspicious 

activity to law enforcement and other 

appropriate authorities. 

For example, the SEC’s Custody 

Rule 62 generally requires RIAs with 

custody of client funds and securities to 

maintain client assets at a qualified 

custodian and comply with other 

safeguards, subject to certain limited 

exceptions. This rule is intended to 

protect advisory client assets from loss, 

misuse, theft, or misappropriation by, 

and the insolvency or financial reverses 

of, the adviser. Qualified custodians 

may be able to detect and report certain 

suspicious activity involving a RIA’s 

customer, such as a high volume of 

trading or indications of layering 

activity, but they often may lack 

identifying information about the RIA’s 

customer and their source of funds 

because that customer is not their 

institution’s customer. As a result, 

qualified custodians can be limited in 

their ability to detect other types of 

illicit proceeds associated with that 

RIA’s customer. 

Other financial intermediaries 

providing services to an investment 

adviser or its customers, such as banks, 

clearing brokers, executing brokers, and 

futures commission merchants, may 

have AML/CFT obligations, but often, 

they may not be well-positioned to have 

a complete understanding of the 

identity, source of funds, and 

investment objectives of the adviser’s 

underlying customer. For instance, 

some investment advisers may be 

reluctant to have a broker-dealer contact 

their customers because they view the 

broker-dealer as a competitor.63

Similarly, the Compliance Rule 64

under the Advisers Act does not require 

an RIA to implement AML/CFT-related 

policies and procedures. Under the 

Compliance Rule, an RIA must adopt 

and implement written policies and 

procedures reasonably designed to 

prevent violations of the Advisers Act 

and its implementing rules and 

regulations and to designate a chief 

compliance officer to administer the 

RIA’s compliance policies and 

procedures. These policies and 

procedures should take into 

consideration the nature of that firm’s 

operations and should be designed to 

prevent, detect, and promptly correct 

any violations of the Advisers Act or the 

rules thereunder. The Compliance Rule 

does not address the requirements of the 

BSA. While the Compliance Rule 

establishes a procedural and 

organizational framework that RIAs may 

be able to build upon to implement 

AML/CFT measures, the rule does not 

mandate that an RIA address AML/CFT 

in its policies and procedures. Some 

investment advisers may have policies 

and procedures to comply with Office of 

Foreign Assets Control (OFAC) 

sanctions, which similarly may provide 

a framework for implementing certain 

AML/CFT measures included in the 

proposed rule.65


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66See Caribbean Financial Action Task Force 

Mutual Evaluation of the Cayman Islands (Mar. 

2019), p. 26, 30–31, https://www.fatf-gafi.org/ 

media/fatf/documents/reports/mer-fsrb/CFATFCayman-Islands-Mutual-Evaluation.pdf. While a 

fund may be domiciled or registered in the Cayman 

Islands, the adviser managing that fund may be 

located in the United States and/or registered with 

the SEC. 

67 Id. at pp. 135–140 (Cayman Islands received 

the lowest possible rating for supervision). 

Additionally, fund administrators in the Cayman 

Islands filed only 37 SARs in 2017. Id. at p. 117. 

68See SEC, Private Fund Statistics, Fourth 

Calendar Quarter 2022, https://www.sec.gov/files/ 

investment/private-funds-statistics-2022-q4.pdf. 69 Information derived from an analysis of select 

BSA reporting. 

70From a FinCEN review of the total number of 

SARs filed between 2013 and 2021. 

(d) Investment Advisers to Private 

Funds Routinely Rely on Third-Party 

Administrators Located Outside of the 

United States 

Routine reliance on third-party 

administrators by investment advisers to 

private funds for a range of 

administrative tasks, including investor 

due diligence and identity verification, 

poses a material illicit finance risk. 

While some third-party administrators 

are located in the United States and may 

be affiliated with larger financial 

institutions, others are located in 

offshore financial centers where private 

funds are routinely domiciled, usually 

for tax or other commercial reasons 

unrelated to AML/CFT regulation, such 

as the Cayman Islands.66 The due 

diligence and verification practices of 

these offshore fund administrators are 

not uniform, and may vary based upon 

the requirements of the local regulatory 

regime as well as the requirements of 

the fund’s adviser. While some 

investment advisers may rely on these 

administrators to manage their 

perceived risk or to comply with local 

regulatory requirements, the piecemeal 

review of investor information is not a 

substitute for comprehensive AML/CFT 

compliance measures. These third-party 

administrators may also face legal and 

regulatory challenges in receiving and 

verifying documentation from foreign 

legal entity investors in funds they 

service. Further, effective AML/CFT 

supervision of fund administrators 

based outside the United States is often 

still nascent, with foreign regulators 

taking few enforcement actions to 

date.67

(e) Use of Multiple Legal Entities for 

Cross-Border Investment Structure 

Some investment advisers provide 

advisory services to customers that 

structure their investments through 

several layers of U.S. and foreign legal 

entities or arrangements, such as limited 

liability companies (LLCs) and trusts, 

often referred to colloquially as ‘‘shell 

companies.’’ Such structures may be 

used for legitimate tax reasons, but can 

be used to obfuscate the source of funds 

for either natural person or legal entity 

investors and obscure unlawful 

conduct. 

An additional challenge is the use of 

nominee arrangements, in which an 

intermediary (often a foreign bank or 

overseas custodial service provider) 

agrees to be identified as the nominal 

investor and essentially acts as a 

‘‘shield’’ for individuals who want to 

make investments without disclosing 

their identities or source of funds. These 

nominee arrangements can be used in 

connection with other intermediaries in 

the ownership chain (e.g., the nominee 

may be acting on behalf of a foreign 

asset manager, who in turn has the 

relationship with an illicit actor or 

politically exposed person (PEP)). While 

these nominee arrangements often can 

have legitimate purposes, if they are not 

explicitly identified in required reports 

or records, they can be abused to 

obscure potentially illicit funds and 

make it extremely difficult (if not 

impossible) for regulators to identify 

and fully understand the nature and 

extent of illicit finance risks in this 

sector. As of Q4 2022, private fund 

advisers reporting on Form PF noted 

that they did not know, and could not 

reasonably obtain information about, the 

non-U.S. beneficial ownership of 

approximately $284 billion in private 

fund AUM.68

In addition, data privacy or other laws 

or regulations in effect in offshore 

jurisdictions, or contractual obligations, 

may impact how certain customer 

information is shared with investment 

advisers, broker-dealers, and other 

financial institutions (and by extension, 

U.S. law enforcement and regulators). 

While some investment advisers are 

introduced to new foreign investors by 

foreign entities subject to AML/CFT 

obligations (such as a broker-dealer), 

this practice is not consistent, as other 

introducers or promoters may be 

individuals with no AML/CFT 

obligations. 

2. Illicit Finance Threats to Investment 

Advisers 

Treasury, in coordination with 

Federal law enforcement and 

consultation with the SEC, conducted a 

comprehensive assessment of illicit 

finance risk in the investment adviser 

industry. Treasury’s review included an 

analysis of SARs filed between 2013 and 

2021 that were associated with RIAs and 

ERAs.69 That analysis found that 15.4 

percent of RIAs and ERAs were 

associated with or referenced in at least 

one SAR (i.e., they were identified 

either as a subject or in the narrative 

section of the SAR) during this time. 

Further, the number of SAR filings 

associated with an RIA or ERA 

increased by approximately 400 percent 

between 2013 and 2021—a 

disproportionately higher increase than 

the overall increase in SAR filings, 

which was approximately 140 

percent.70

This SAR analysis, along with a 

review of law enforcement cases and 

other information available to the U.S. 

government, identified several illicit 

finance threats involving RIAs and 

ERAs. First, in some instances, the 

investment adviser industry has served 

as an entry point into the U.S. market 

for illicit proceeds associated with 

foreign corruption, fraud, and tax 

evasion. Second, certain advisers 

manage billions of dollars ultimately 

controlled by Russian oligarchs and 

their associates who help facilitate 

Russia’s illegal and unprovoked war of 

aggression against Ukraine. Third, 

certain RIAs and ERAs and the private 

funds they advise are also being used by 

foreign states, most notably the People’s 

Republic of China (PRC) and Russia, to 

access certain technology and services 

with long-term national security 

implications through investments in 

early-stage companies. 

(a) Laundering of Illicit Proceeds 

Through Investment Advisers and 

Private Funds 

Private funds can be a particularly 

attractive entry point for illicit proceeds 

because they present a possibility of 

high returns, in contrast to other, more 

costly forms of money laundering, such 

as trade-based money laundering or 

informal value transfer systems. Like 

other types of pooled accounts or legal 

entities, they can be used to obscure the 

names of individual investors or 

beneficial owners so that the investment 

fund is identified as the owner of a 

particular asset. However, there are a 

wide variety of private funds, and some 

have characteristics that have 

traditionally been seen as less attractive 

to money launderers. For instance, some 

hedge funds may have lock-up periods 

of more than a year while venture 

capital funds and private equity funds 

may not permit any withdrawals due to 

the time it takes for the private 

companies in which those funds invest 

to go public or otherwise provide an exit 

strategy for these funds. While these 

restrictions may deter criminals who 

need immediate access to illicit 


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71Low represented to counterparties and 

potential business partners that Jynwel Capital 

Limited was an investment adviser to a private 

equity fund. 72 Verified Compl. for Forfeiture (Dkt. 3) ¶ 760, 

United States v. Real Property Located in London, 

United Kingdom Titled in the Name of Red 

Mountain Global Ltd., No. 19–cv–1326, (C.D. Cal. 

Feb. 22, 2019), https://www.justice.gov/opa/pressrelease/file/1134376/download. 

73See id. ¶ 204–12. 

74 Department of Justice, ‘‘Former Swiss Bank 

Executive Pleads Guilty to Role in Billion-Dollar 

International Money Laundering Scheme Involving 

Funds Embezzled from Venezuelan State-Owned 

Oil Company,’’ (Aug. 22, 2018), https://www.justice.

gov/opa/pr/former-swiss-bank-executive-pleadsguilty-role-billion-dollar-international-moneylaundering; Department of Justice, ‘‘Two Members 

of Billion-Dollar Venezuelan Money Laundering 

Scheme Arrested’’ (Jul. 25, 2018), https://www.

justice.gov/opa/pr/two-members-billion-dollarvenezuelan-money-laundering-scheme-arrested. In 

August 2018, Krull pleaded guilty to one count of 

conspiracy to commit money laundering, and in 

November 2019, Hernandez, a former investment 

adviser, also pleaded guilty to conspiracy to commit 

money laundering in connection with his role in 

the scheme. Plea Agreement (Dkt. 163), United 

States v. Hernandez, (S.D. Fl. Nov. 26, 2019), 

https://www.justice.gov/criminal-fraud/file/ 

1316826/download. 

75Factual Proffer (Dkt. 164), United States v. 

Hernandez, No. 18–cr–20685 (S.D. Fl. Nov. 26, 

2019), https://www.justice.gov/criminal-fraud/file/ 

1316831/download. 

76Criminal Compl., United States v. Guruceaga 

( ), 18–mj–3119 (S.D. Fl. Jul. 24, 2018), https://www.

justice.gov/criminal-fraud/file/1119981/download. 

77See FinCEN Alert, FIN–2023–Alert002, FinCEN 

Alert on Potential U.S. Commercial Real Estate 

Investments by Sanctioned Russian Elites, 

Oligarchs, and Their Proxies, p.4 (Jan. 25, 2023). In 

addition to Russian investors, investors tied to 

China and Saudi Arabia have invested in U.S. 

private funds. See, e.g., The German Marshall Fund 

of the United States, Policy Brief: An Effective 

American Regime to Counter Illicit Finance (Dec. 

2018), https://securingdemocracy.gmfus.org/wpcontent/uploads/2018/12/An-Effective-AmericanRegime-to-Counter-Illicit-Finance.pdf. 

proceeds, they are unlikely to deter 

wealthy corrupt foreign actors who seek 

stable returns, and have a medium- to 

long-term investment horizon, and do 

not need immediate access to capital. 

The mechanisms for laundering illicit 

proceeds through investment advisers 

and private funds vary, but generally 

consist of obscuring the illicit origins of 

funds and pooling them with legitimate 

funds to invest in U.S. securities, real 

estate, or other assets. 

In one significant case involving 

funds stolen from the Malaysian 

government, an RIA was used to launder 

illicit proceeds into the U.S. financial 

system. In December 2012, investment 

funds affiliated with Low Taek Jho 

(Low) laundered approximately $150 

million diverted from 1Malaysia 

Development Berhad’s (1MDB) 2012 

bond issuance into the U.S. financial 

system. Low was CEO of Jynwel Capital 

Limited, an investment adviser to a 

private equity fund in Asia.71 Through 

a subsidiary of Jynwel Capital Limited, 

Low purchased equity interests in a 

vehicle managed by the Electrum 

Group, a private equity firm in the 

United States ‘‘whose offices are located 

in New York and Colorado, invests in 

public and private companies involved 

in the exploration and development of 

natural resources, precious metals, base 

metals, and oil and gas.’’ 72 Electrum 

Group, LLC is registered with the SEC 

as an RIA. To conceal their origin, the 

funds were moved through multiple 

accounts owned by different entities on 

or about the same day in an 

unnecessarily complex manner with no 

apparent business purpose. This 

illustrates the general problem: without 

an obligation to determine the source of 

wealth and purpose for a customer, an 

investment adviser may unwittingly 

permit illicit funds to enter the U.S. 

financial system.73

In some instances, the investment 

adviser or other financial professional 

may form a private fund through which 

illicit proceeds can be transferred as 

part of a money laundering scheme. 

While past examples have featured 

investment advisers complicit in illegal 

activity, an investment adviser may be 

unwittingly complicit in this type of 

activity if they are not required to 

understand the origin of funds or nature 

of their owner. A customer wishing to 

launder money could ask an investment 

adviser to establish a private fund to 

certain specifications without informing 

the adviser of the customer’s broader 

scheme. Without an obligation to report 

potential money laundering or other 

illicit finance activity, the adviser could 

participate without inquiring further. 

In July 2018, U.S. law enforcement 

arrested two alleged participants, 

Matthias Krull and Gustavo Adolfo 

Hernandez Frieri (Hernandez), in a 

billion-dollar international scheme to 

launder funds obtained through 

embezzlement, fraud, and bribery from 

Venezuelan state-owned oil company 

Petroleos De Venezuela S.A. (PDVSA).74

According to the stipulated factual 

proffer filed in connection with his plea 

agreement, Hernandez conspired to 

launder approximately $12 million in 

PDVSA bribe proceeds by creating a 

private fund, domiciled in the Cayman 

Islands, and with a U.S. bank as 

custodian.75 Specifically, he admitted 

that he conspired to launder $7 million 

in bribe payments related to a loan 

scheme, and $5 million in bribe 

payments related to a separate currency 

exchange scheme, through his 

investment advisory firm located in the 

United States. Separately, a coconspirator in the scheme set up 

fraudulent bond schemes in which fake 

bonds would be issued, money 

transferred into the private fund, and 

then the bonds would ‘‘default.’’ 76

While in this instance the adviser was 

complicit in the fraudulent scheme, a 

client could also direct an unwitting 

investment adviser to create a private 

fund to specifications that facilitate 

money laundering. In the absence of an 

AML/CFT program requirement for 

investment advisers, the investment 

adviser might not have any obligation to 

evaluate such risks. 

(b) Russian Political and Economic 

Elites’ Access to U.S. Investments 

Investment advisers and private funds 

they advise have served as an important 

entry point into the U.S. financial 

system for wealthy Russians seeking to 

obscure their ownership of U.S. assets.77

Although many of these Russian 

individuals were not sanctioned by the 

U.S. Government prior to Russia’s fullscale invasion of Ukraine in February 

2022, their wealth was sometimes 

associated with corruption, theft of state 

assets, or other illicit activity well 

before their designation. 

A Treasury review of select BSA 

reporting filed between January 2019 

and June 2023 identified more than 20 

investment advisers located in the 

United States advising private funds 

where the adviser was identified as 

having significant ties to Russian 

oligarch investors or Russian-linked 

illicit activities. This review also 

identified 60 additional investment 

advisers located in the United States 

who managed private funds in which 

identified Russian oligarchs have 

invested, although there was no 

indication the adviser was engaged in 

any illicit activity. 

According to information available to 

the U.S. government, often, a member of 

the Russian elite or their trusted proxy 

invests in a public or private U.S. 

company with the assistance of a wealth 

management firm, which is usually 

located in an offshore jurisdiction such 

as Bermuda, the Caymans, or Cyprus, 

but services primarily Russian 

customers. The wealth management 

firm invests that money in dollars 

through the U.S. financial system, often 

into U.S. technology companies in fields 

including biotechnology and artificial 

intelligence. The scale of these 

investments is significant and may 

include billions of dollars invested for 

a single Russian oligarch. These 

investments are sometimes made 

directly by the foreign wealth 

management firm, and in other 

instances through a U.S.-based RIA or 

ERA. 


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78 In March 2022, the United Kingdom and the 

European Union sanctioned Matlin and Concord’s 

client and the client’s assets were subsequently 

frozen. The SEC’s complaint alleges that, a month 

prior, in February 2022, Concord and Matlin 

assisted the client in his attempts to redeem 

investments and/or sell his securities portfolio. See 

SEC, Press Release 2023–186, SEC Charges New 

York Firm Concord Management and Owner with 

Acting as Unregistered Investment Advisers to 

Billionaire Former Russian Official (Sep. 19, 2023). 

79CFIUS is an interagency committee authorized 

to review certain transactions involving foreign 

investment in the United States in order to 

determine the effect of such transactions on the 

national security of the United States. 

80See Treasury, ‘‘Remarks by Assistant Secretary 

for Investment Security Paul Rosen at the Second 

Annual CFIUS Conference,’’ (Sept. 14, 2023), 

https://home.treasury.gov/news/press-releases/ 

jy1732. 

81 Id. 

82See Hearing Before the U.S.-China Economic 

and Security Review Commission, p.139, ‘‘Chinese 

Investments in the United States: Impacts and 

Issues for Policymakers’’ Jan. 26, 2017, https://

www.uscc.gov/sites/default/files/transcripts/

Chinese%20Investment%20in%20the%20United

%20States%20Transcript.pdf; see also Remarks by 

FBI Director Christopher Wray, ‘‘Countering Threats 

Posed by the Chinese Government Inside the U.S.,’’ 

Jan. 31, 2022, https://www.fbi.gov/news/speeches/ 

countering-threats-posed-by-the-chinesegovernment-inside-the-us-wray-013122. 

83Office of the United States Trade 

Representative, ‘‘Findings of the Investigation into 

China’s Acts, Policies, and Practices Related to 

Technology Transfer, Intellectual Property, and 

Innovation under section 301 of the Trade Act of 

1974,’’ Mar. 22, 2018, 14–15 & 95–96, https://

ustr.gov/sites/default/files/Section%20301%20

FINAL.PDF. 

84PRC State Council, ‘‘National 13th Five-Year 

Plan for the Development of Strategic Emerging 

Industries,’’ Nov. 29, 2016, https://cset.georgetown.

edu/publication/national-13th-five-year-plan-forthe-development-of-strategic-emerging-industries/

#:∼:text=During%20the%2013th%20Five%2DYear,

healthy%20economic%20and%20social%20

development. 

85See FinCEN, Anti-Money Laundering Programs 

for Unregistered Investment Companies, 67 FR 

60617 (Sept. 26, 2002). 

86See FinCEN, Anti-Money Laundering Programs 

for Investment Advisers, 68 FR 23646 (May 5, 2003). 

In other instances, funds may be 

routed through a consulting firm or 

other entity acting as an investment 

adviser but not registered with or 

reporting to the SEC or State regulator. 

For instance, on September 19, 2023, 

the SEC announced charges against 

Concord Management LLC (Concord) 

and its owner and principal, Michael 

Matlin, for operating as unregistered 

investment advisers to their only 

client—a wealthy former Russian 

official widely regarded as having 

political connections to the Russian 

Federation.78 As of January 2022, 

Concord and Matlin allegedly managed 

investments for their sole client with an 

estimated total value of $7.2 billion in 

112 different private funds. 

(c) Foreign State Actors Exploiting 

Investment Advisers To Threaten U.S. 

National Security 

Some strategic nation-state 

competitors to the United States, most 

notably the PRC, may see private funds 

as a back door to acquire assets of 

interest in the United States, such as 

equity stakes in companies developing 

critical or emerging technologies. While 

there are certain transactions for which 

notice must be provided to the 

interagency Committee on Foreign 

Investment in the United States 

(CFIUS),79 most transactions reviewed 

by CFIUS are filed voluntarily.80 Where 

transactions are not voluntarily 

submitted to CFIUS for review, CFIUS 

agencies actively work to identify those 

transactions, including whether such 

transactions may be a covered 

transaction under the CFIUS regulations 

and may raise national security 

considerations, and assess whether to 

request that the parties file with 

CFIUS.81

Foreign state-funded investment 

vehicles may seek to hide their 

involvement in foreign investments 

through offshore legal entities and 

intermediaries in an effort to gain access 

to sensitive technology, processes, or 

knowledge that can enhance their 

domestic development of 

microelectronics, artificial intelligence, 

biotechnology and biomanufacturing, 

quantum computing, and advanced 

clean energy, among others. These statefunded investment vehicles could 

persuade an investment adviser to a 

private fund to grant them access to 

granular details about the technology or 

processes used by a company in which 

the fund is invested, including 

information that a limited partner 

investor seeking only an economic 

return may not typically request. 

PRC. According to the Federal Bureau 

of Investigation (FBI), the PRC 

government routinely conceals its 

ownership or control of investment 

funds to disguise efforts to steal 

technology or knowledge and avoid 

notice to CFIUS.82 According to a report 

by the Office of the U.S. Trade 

Representative, State-guided PRC 

venture capital fund activity in the 

United States is motivated by the Made 

in China 2025 plan and the militarycivil fusion strategy, directing 

investments towards developing 

technology with dual-use capabilities.83

In 2016, the PRC government explicitly 

endorsed the use of overseas venture 

capital funds to invest in ‘‘seed-based 

and start-up technology,’’ demonstrating 

the link between the funds and 

government priorities.84

Russia. According to information 

available to the U.S. government, 

Russian elites and government entities 

are moving hundreds of millions of 

dollars annually through the U.S. 

financial system by using U.S. and 

foreign venture capital firms to invest in 

U.S. technology companies. A Treasury 

review of select BSA reporting 

identified several U.S. venture capital 

firms with significant ties to Russian 

oligarch investors that invested in firms 

developing emerging technologies with 

national security applications. These 

include autonomous vehicle technology 

and artificial intelligence systems, as 

well as contractors to the U.S. military, 

intelligence, and other government 

agencies. Further, according to 

information available to the U.S. 

government, the U.S.-designated, stateowned Russian Venture Company, 

which is funded by the U.S.-designated 

Russian Direct Investment Fund, 

endows Russian seed funds to invest in 

emerging technology. The seed funds 

create a venture capital company, often 

of a similar name to the seed fund and 

registered outside of Russia, to invest in 

U.S. technology firms. The U.S. 

government has also identified 

instances where the leadership of 

certain investment firms has attempted 

to remove overt ties to Russia or Russian 

names. Russian investors have 

obfuscated their connections to Russia, 

including by relocating to other 

jurisdictions and changing their names, 

to continue investing in U.S. technology 

companies through venture capital 

vehicles. 

D. Prior Rulemaking and Regulatory 

Guidance 

FinCEN has previously proposed 

AML regulations for investment 

advisers. On September 26, 2002, 

FinCEN published an NPRM proposing 

to require that unregistered investment 

companies, to include private funds, 

establish AML programs (Proposed 

Unregistered Investment Companies 

Rule).85 This was followed by the May 

5, 2003 NPRM proposing to require 

certain investment advisers to establish 

AML programs (First Proposed 

Investment Adviser Rule).86 Both of 

these proposed rules would have 

defined these entities as ‘‘financial 

institutions’’ under the BSA and 

required the implementation of AML 

programs only; they did not propose 

suspicious activity reporting 

requirements. 

In June 2007, FinCEN announced that 

it would be taking a fresh look at how 

its broader AML regulatory framework 

was being implemented to ensure that it 

was being applied effectively and 

efficiently across the industries covered 


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87See FinCEN, Withdrawal of the Notice of 

Proposed Rulemaking; Anti-Money Laundering 

Programs for Unregistered Investment Companies, 

73 FR 65569 (Nov. 4, 2008); and FinCEN, 

Withdrawal of the Notice of Proposed Rulemaking; 

Anti-Money Laundering Programs for Investment 

Advisers, 73 FR 65568 (Nov. 4, 2008). 

88 Id. 

89See FinCEN, Anti-Money Laundering Program 

and Suspicious Activity Report Filing Requirements 

for Registered Investment Advisers, 80 FR 52680 

(Sept. 1, 2015). 

90Based on a Treasury review of Form ADV data 

as of December 31, 2015. 

91See supra n. 26. 

92 Id. 

93 IAA Snapshot, supra n. 19 at Table 5E. 

94Treasury withdrew the proposal from the Fall 

2020 Unified Agenda. See Anti-Money Laundering 

Program and Suspicious Activity Reporting Filing 

Requirements for Investment Advisers, available at 

https://www.regulations.gov/docket/FINCEN-2014- 

0003/unified-agenda. 

95See Treasury, Investment Adviser Illicit 

Finance Risk Assessment, https://home.treasury.

gov/system/files/136/US-Sectoral-Illicit-FinanceRisk-Assessment-Investment-Advisers.pdf. 

96As described below, the proposed revised 

§ 1010.605(e)(1) would expressly provide that an 

investment adviser would not be considered a 

‘‘covered financial institution’’ for the purposes of 

§ 1010.230. See infra section IV.H.1. 

97 31 U.S.C. 5318(l)(4). 

98 12 U.S.C. 1843(k)(4)(C). 

99FinCEN is required to revise the CDD Rule 

under the Corporate Transparency Act. Sec. 

6403(d)(1), AML Act. (‘‘Not later than 1 year after 

the effective date of the regulations promulgated 

under section 5336(b)(4) of title 31, United States 

Code, as added by subsection (a) of this section, the 

Secretary of the Treasury shall revise the final rule 

entitled ‘Customer Due Diligence Requirements for 

Financial Institutions’ . . . .’’). 

by the BSA.87 In conjunction with this 

initiative, and given the amount of time 

that had elapsed since initial 

publication of the Proposed 

Unregistered Investment Companies 

Rule and the First Proposed Investment 

Adviser Rule, FinCEN determined that 

it would not proceed to apply AML 

requirements for these entities without 

undertaking further public notice and 

comment, and therefore withdrew the 

proposed rules on November 4, 2008.88

On September 1, 2015, FinCEN 

published an NPRM ‘‘to prescribe 

minimum standards for . . . [AML] 

programs to be established by certain 

investment advisers and to require such 

investment advisers to report suspicious 

activity to FinCEN pursuant to the . . . 

BSA’’ (Second Proposed Investment 

Adviser Rule).89 This proposed rule 

would have included RIAs within the 

definition of ‘‘financial institution’’ 

under the BSA and required them to 

maintain AML programs, report 

suspicious activity, and comply with 

other travel and recordkeeping 

requirements. The Second Proposed 

Investment Adviser Rule would not 

have included ERAs as financial 

institutions under the BSA. 

Since 2015, the investment adviser 

industry has seen substantial growth in 

assets under management and the 

expansion of new products and services. 

At the time the Second Proposed 

Investment Adviser Rule was published, 

there were approximately 12,000 RIAs 

reporting approximately $67 trillion in 

AUM.90 As of June 30, 2023, that 

number had grown to more than 15,000 

RIAs with approximately $125 trillion 

in AUM.91

Private funds play an increasingly 

important role in the financial system 

and continue to grow in size, 

complexity, and number. For example, 

hedge funds engage in trillions of 

dollars in listed equity and futures 

transactions each month. Private equity 

and other private funds are involved in 

mergers and acquisitions, non-bank 

lending, and corporate restructurings 

through leveraged buyouts and 

bankruptcies. Venture capital funds 

provide funding to start-ups and earlystage companies. There are 

approximately 5,500 RIAs who advise 

more than $20 trillion in private fund 

AUM.92 Over the past five years alone, 

the number of private equity funds 

advised by RIAs increased 60 percent to 

more than 24,000, while the number of 

venture capital funds advised by RIAs 

increased by almost 300 percent, to 

more than 3,300 funds.93

Since 2015, the U.S. Government has 

also developed a more detailed 

understanding of the illicit finance risks 

associated with the U.S. investment 

adviser industry. As described in 

section II, investment advisers have 

been exploited by sophisticated 

criminals, Russian oligarchs, and U.S. 

strategic competitors. 

Although the Second Proposed 

Investment Adviser Rule was not 

formally withdrawn,94 Treasury does 

not intend to issue a final rule based on 

it and is hereby withdrawing the Second 

Proposed Investment Adviser Rule. 

Treasury is issuing this new NPRM to 

ensure that changes in the risk and 

factual context relevant to the 

rulemaking since the Second Proposed 

Investment Adviser Rule was published 

are taken into account. 

III. Scope of Proposed Rule 

For all the reasons described above, 

FinCEN is proposing to cover both RIAs 

and ERAs as ‘‘financial institutions’’ 

subject to AML/CFT requirements. 

FinCEN is not proposing to cover Stateregistered investment advisers because 

the Treasury risk assessment found few 

examples of State-registered investment 

advisers being misused for money 

laundering, terrorist financing, or other 

illicit financial activities.95 However, 

FinCEN will continue to monitor 

activity involving State-registered 

investment advisers for indicia of 

money laundering, terrorist financing, 

or other illicit finance activities, and 

may take appropriate steps to mitigate 

any such activity. 

As discussed further below, this 

proposed rulemaking does not impose a 

CIP requirement or a general 

requirement that investment advisers 

identify and verify the beneficial 

ownership of legal entity customers. 

Accordingly, the proposed rule would 

not subject investment advisers to 

beneficial ownership information 

identification and verification 

requirement under 31 CFR 1010.230.96

Under the BSA, any CIP requirement for 

financial institutions that engage in 

financial activities described in section 

4(k) of the Bank Holding Company Act 

‘‘shall be prescribed jointly with each 

Federal functional regulator.’’ 97 This 

list of activities includes, among others, 

‘‘providing financial, investment, or 

economic advisory services.’’ 98

Pursuant to these provisions, any future 

application of CIP requirements would 

be proposed jointly with the SEC in a 

separate rulemaking. In addition, 

FinCEN intends to amend the CDD Rule 

to bring it into conformance with the 

Corporate Transparency Act.99

IV. Section-by-Section Analysis 

FinCEN is proposing to: (1) include 

certain types of investment advisers 

(both RIAs and ERAs) within the 

definition of ‘‘financial institution’’ in 

the regulations implementing the BSA, 

and add a definition of investment 

adviser to reflect those covered types; 

and (2) require such investment advisers 

to (a) establish AML/CFT programs, to 

include risk-based procedures for 

conducting ongoing CDD; (b) report 

suspicious activity and file CTRs; (c) 

maintain records of originator and 

beneficiary information for certain 

transactions; (d) apply informationsharing provisions between and among 

FinCEN, law enforcement, agencies, and 

certain financial institutions; and (e) 

implement special due diligence 

requirements for correspondent and 

private banking accounts and special 

measures under section 311 of the USA 

PATRIOT Act. These proposals are 

discussed in greater detail below. 

A. Definitions 

FinCEN is proposing two changes to 

31 CFR 1010.100, the general definitions 

section of its regulations. First, this 

proposed rule would amend 1010.100(t) 

to add ‘‘investment adviser’’ to the 

definition of ‘‘financial institution.’’ 


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100 31 U.S.C. 5312(a)(2), (c)(1). 

101 31 U.S.C. 5312(a)(2)(Y). FinCEN may also 

designate businesses ‘‘whose cash transactions have 

a high degree of usefulness in criminal, tax, or 

regulatory matters’’ as financial institutions. Id. 

5312(a)(2)(Z). 

102See supra n. 26. 

103See, e.g., SEC, Commission Interpretation 

Regarding Standard of Conduct for Investment 

Advisers, Investment Advisers Act Release No. 5248 

(Jun. 5, 2019), 84 FR 33669, 33674–75 (Jul. 12, 

2019) (discussing an investment adviser’s duty to 

seek best execution of a client’s transactions where 

the investment adviser has the responsibility to 

select broker-dealers to execute client trades) 

104See 15 U.S.C. 80b–2(a)(11)(C) (excluding from 

the definition of ‘‘investment adviser’’ under the 

Advisers Act any broker or dealer whose 

performance of advisory services is ‘‘solely 

incidental to the conduct of his business as a broker 

or dealer and [the broker or dealer] receives no 

special compensation therefor’’); see also SEC, 

Commission Interpretation Regarding the Solely 

Incidental Prong of the Broker-Dealer Exclusion 

from the Definition of Investment Adviser, 

Investment Advisers Act Release No. 5249 (Jun. 5, 

2019), 84 FR 33681 (Jul. 12, 2019). 17 CFR 240.15l– 

1. 

105House Report 107–250(I), Financial AntiTerrorism Act of 2001, 2001 WL 1249988 at *66 

(Oct. 17, 2001); see also Public Law 107–31, Title 

III section 321 (Oct. 26, 2001) (section of USA 

PATRIOT Act adding futures commission 

merchants, commodity trading advisors, and 

commodity pool operators to the definition of 

‘‘financial institutions’’ for purposes of 31 U.S.C. 

5312(a)). 

106See 15 CFR 275.203(l)–1; 15 CFR 275.203(m)– 

1. 

Second, it would add a new provision 

to 1010.100 defining the term 

‘‘investment adviser.’’ 

1. Adding ‘‘Investment Adviser’’ to the 

‘‘Financial Institution’’ Definition 

The BSA expressly defines various 

entities as ‘‘financial institutions,’’ 100

while also providing Treasury with the 

authority to define additional entities as 

financial institutions in its regulations 

at 31 CFR 1010.100(t). Specifically, the 

BSA authorizes FinCEN to define 

additional types of businesses as 

financial institutions if FinCEN 

determines that such businesses engage 

in any activity ‘‘similar to, related to, or 

a substitute for’’ activities in which any 

of the enumerated financial institutions 

are authorized to engage.101 Although 

‘‘investment adviser’’ is not one of the 

specifically enumerated financial 

institutions in the BSA, FinCEN is 

proposing to make such a determination 

with respect to the defined set of 

investment advisers, and thereby add 

investment advisers to § 1010.100(t)’s 

definition of financial institution. 

Investment advisers provide services 

that are similar or related to services 

authorized to be provided by BSAdefined financial institutions. Many 

investment advisers provide advice to 

clients who have granted the adviser the 

power to manage assets on a 

discretionary basis, which is similar or 

related to services provided by other 

BSA-defined institutions, such as 

broker-dealers or banks. Indeed, many 

investment advisers provide asset 

management services that are similar to, 

and often substituted for, the asset 

management services that are provided 

by banks and other financial 

institutions, such that advisers may 

compete directly with asset 

management services provided by 

certain banks. Investment advisers also 

often provide services that can 

substitute for certain products offered 

by investment companies or insurance 

companies. For example, investment 

advisers can sponsor and provide 

advisory services to pooled investment 

vehicles such as private funds. As 

another example, many investment 

advisers sponsor and provide advisory 

services to mutual funds and advise on 

the purchase or sale of mutual fund 

shares, similar to banks or broker 

dealers that provide recommendations 

on mutual fund shares. 

Moreover, investment advisers often 

work closely with, or are otherwise 

closely associated with, BSA-defined 

financial institutions. For example, 

investment advisers work closely with 

financial institutions when they direct 

broker-dealers to purchase or sell client 

securities, and therefore engage in 

activities that are closely related to the 

activities of covered financial 

institutions. In addition, investment 

advisers are frequently owned by or 

under common ownership with banks, 

broker-dealers, and other financial 

institutions. For example, 

approximately 20 percent of RIAs and 

seven percent of ERAs are dually 

registered as a broker-dealer, licensed as 

a bank, or affiliated with a bank or 

broker dealer.102 Investment advisers 

typically rely on broker-dealers, banks, 

and other financial institutions to 

perform vital functions for them, such 

as retaining custody of client funds or 

executing trades of securities.103 Brokerdealers may recommend securities 

transactions to customers as well.104

Accordingly, even investment advisers 

that lack direct relationships with 

banks, broker-dealers, or other types of 

financial institutions engage in activities 

that are ‘‘similar to’’ the types of 

services authorized to be provided by 

certain financial institutions. 

Further, legislative history during 

drafting of the USA PATRIOT Act 

indicates that RIAs are sufficiently 

similar to certain other financial 

institutions that Treasury could require 

them to file SARs: ‘‘The Committee [on 

Financial Services] notes that, under the 

Bank Secrecy Act, the Secretary 

currently has the authority to require 

Suspicious Activity Reports for all 

entities similar to futures commission 

merchants, commodity trading advisors, 

and commodity pool operators, namely 

registered investment advisers and 

registered investment companies.’’ 105

Accordingly, FinCEN hereby 

determines that investment advisers 

engage in activities that are ‘‘similar to, 

related to, or a substitute for’’ financial 

services that other BSA-defined 

financial institutions are authorized to 

engage in and, therefore, may be 

properly included as a ‘‘financial 

institution’’ subject to the requirements 

of the BSA. 

2. Adding a Definition of ‘‘Investment 

Adviser’’ 

FinCEN is also proposing to add a 

definition of ‘‘investment adviser’’ to 31 

CFR 1010.100 to clearly define who 

qualifies as a covered adviser—and thus 

as a ‘‘financial institution’’ under these 

proposed amendments to FinCEN 

regulations. The proposed definition of 

‘‘investment adviser’’ is: ‘‘[a]ny person 

who is registered or required to register 

with the SEC under section 203 of the 

Advisers Act (15 U.S.C. 80b–3(a)), or 

any person that currently is exempt 

from SEC registration under section 

203(l) or 203(m) of the Investment 

Advisers Act (15 U.S.C. 80b–3(l), 

(m)).’’ 106 In other words, under this 

proposed definition, an investment 

adviser would be any RIA (those 

registered or required to register) or ERA 

(those exempt from SEC registration 

under the listed provisions). 

The proposed definition relies on 

well-established and understood terms 

and definitions used in the Advisers Act 

and its implementing regulations to 

define who would be an investment 

adviser under FinCEN regulations. 

FinCEN believes that incorporating 

existing and well-understood regulatory 

definitions into its definition of 

investment adviser would simplify the 

investment advisers’ determinations as 

to whether they are subject to the 

proposed requirements. FinCEN 

requests comment on whether the 

proposed definition of ‘‘investment 

adviser’’ is sufficiently clear, or whether 

some other definition may be preferable. 

FinCEN also requests comment on 

whether the proposed definition 

includes classes of investment advisers 

or certain services or activities provided 

by investment advisers that present a 

very low risk for money laundering, 


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107See SEC, Rules Implementing Amendments to 

the Investment Advisers Act of 1940, Investment 

Advisers Act Release No. 3221 (Jun. 22, 2011), 76 

FR 42950, 42955 (Jul. 19, 2011). 

108See id.; see also Instructions for Part 1A, Item 

5.F of Form ADV. 

109An investment adviser that is registered with 

the SEC on a basis other than its AUM would also 

be an ‘‘investment adviser’’ under the proposed rule 

and subject to the proposed requirements. 

110 Generally, a mid-sized adviser has $25 million 

or more but less than $110 million in regulatory 

assets under management and is registered with the 

State where it maintains its principal office and 

place of business. A small adviser has less than $25 

million in regulatory assets under management and 

is regulated or required to be regulated in the State 

where it maintains its principal office and place of 

business. See 15 U.S.C. 80b–3A(a)(1). Mid-sized 

and small advisers are generally prohibited from 

registering with the SEC, unless an exemption from 

the prohibition on SEC registration is available (see 

17 CFR 275.203A–2), and therefore are unlikely to 

be covered by the proposed definition of 

‘‘investment adviser’’ in the proposed rule as RIAs. 111See 76 FR 42950, 42963, n.188. 

112Treasury Order 180–1, para. 3; 31 CFR 

1010.810(a). 

113Treasury Order 180–1, paras. 3(b), 4(b); 31 

CFR 1010.810(a); 31 U.S.C. 5318(a)(1). 

114See 15 U.S.C. 6809(2)(F); 31 CFR 

1010.100(r)(6); see also 15 U.S.C. 80b–1 et seq. and 

the rules thereunder, 17 CFR part 275. 

115See 31 CFR 1010.810(b)(6). 

terrorist financing, or other illicit 

finance activity such that they should be 

excluded from the definition, or 

whether the proposed definition fails to 

include a type of adviser that presents 

a risk. 

(a) Registered Investment Advisers 

Including RIAs within the proposed 

definition of investment adviser would 

align FinCEN’s regulatory framework 

with the existing framework under the 

Advisers Act and would also allow 

FinCEN to work with the SEC to 

develop consistent application and 

examination of the AML/CFT 

requirements to such advisers. 

Generally, an investment adviser’s 

amount of assets under management 

determine whether it is required to 

register or is prohibited from registering 

with the SEC.107 In implementing the 

Dodd-Frank Act amendments to the 

Advisers Act, the SEC amended the 

instructions to Part 1A of Form ADV to 

further implement a uniform method for 

an investment adviser to calculate its 

assets under management in order to 

determine whether it is required to 

register or is prohibited from registering 

with the SEC.108 Per the Dodd-Frank 

Act and SEC rules, a ‘‘large’’ adviser has 

$110 million or more in regulatory 

assets under management, and is 

required to register with the SEC. These 

are RIAs that would be included in the 

investment adviser definition in the 

proposed rule.109 FinCEN notes that 

large advisers would comprise a 

substantial majority of the total number 

of investment advisers that are included 

in the definition of investment adviser 

for purposes of the proposed rule.110

FinCEN requests comment on whether 

the definition of investment adviser 

should apply to non-U.S. advisers 

registered or required to register with 

the SEC, or who report to the SEC on 

Form ADV. 

(b) Exempt Reporting Advisers 

FinCEN is also including ERAs in the 

definition of investment adviser under 

the proposed rule for the reasons 

described in section II.C above. In 

addition, ERAs have less detailed 

reporting requirements than RIAs, are 

not required to file Form PF, and are not 

examined by the SEC on a regular 

basis.111 Further, exempt venture capital 

advisers are able to rely on a registration 

exemption that is not limited by the 

amount of AUM. FinCEN requests 

comment on whether ERAs should be 

excluded from the proposed definition 

of ‘‘investment adviser,’’ and if ERAs are 

excluded, how could FinCEN otherwise 

address the money laundering, terrorist 

financing, and other illicit finance risk 

associated with ERAs. FinCEN also 

requests comment on whether there are 

differences in the risks associated with 

ERAs who advise private funds versus 

those that advise venture capital funds. 

(c) Other Investment Advisers 

FinCEN recognizes that different 

investment advisers included within the 

proposed definition may have different 

degrees of money laundering, terrorist 

financing, or other illicit finance risk. 

As discussed at greater length below, 

the AML/CFT program requirement is 

risk-based, and FinCEN anticipates that 

the burden of establishing an AML/CFT 

program, filing SARs, and complying 

with the other requirements of the 

proposed rule would be commensurate 

with an adviser’s risk profile. As noted, 

the proposed definition of ‘‘investment 

adviser’’ would include certain non-U.S. 

investment advisers that are physically 

located abroad (i.e., do not have a 

branch, office, or staff in the United 

States), but are nonetheless registered or 

required to register with the SEC (for 

RIAs) or file Form ADV (for ERAs). 

Coverage of these non-U.S. investment 

advisers is discussed further at section 

IV.E.7. 

While FinCEN is limiting the 

proposed definition to RIAs and ERAs, 

FinCEN recognizes that other types of 

investment advisers or other entities 

that provide investment advisory 

services may present risks to the U.S. 

financial system of money laundering, 

terrorist financing, and other types of 

financial crimes, or otherwise pose a 

threat to U.S. national security. FinCEN, 

therefore, may consider future 

rulemakings to expand the application 

of the BSA to include other investment 

advisers or similar entities not covered 

by the proposed definition. FinCEN 

requests comment on whether other 

types of investment advisers or entities 

should also be subject to the proposed 

rule. 

B. Delegation of Examination Authority 

to the Securities and Exchange 

Commission 

FinCEN has overall authority for 

enforcement of compliance with the 

BSA and its implementing 

regulations.112 FinCEN, however, may 

delegate examination authority to 

appropriate agencies while retaining 

authority for the coordination and 

direction of procedures and activities of 

these agencies.113 FinCEN has 

previously delegated examination 

authority for various financial 

institutions, as reflected at 31 CFR 

1010.810(b). 

FinCEN is proposing to amend 31 

CFR 1010.810(b) to add investment 

advisers to the list of financial 

institutions for which the SEC has the 

authority to examine for compliance 

with FinCEN’s regulations 

implementing the BSA. Persons and 

entities meeting the proposed definition 

of investment adviser thus would fall 

under this provision and be subject to 

SEC examination for compliance with 

FinCEN regulations. The SEC has 

expertise in the regulation of investment 

advisers. The SEC is the Federal 

functional regulator for certain 

investment advisers and is responsible 

for examining investment advisers for 

compliance with the Federal securities 

laws, including the Advisers Act and 

the SEC rules promulgated under those 

laws.114 Moreover, FinCEN has 

delegated to the SEC examination 

authority for broker-dealers in securities 

and certain investment companies, 

which are BSA-defined financial 

institutions subject to FinCEN’s 

regulations and for which the SEC is the 

Federal functional regulator.115

Accordingly, the proposed rule would 

designate the SEC as examiner of 

investment advisers for compliance 

with the proposed rule. 

C. Investment Advisers’ Proposed 

Obligation To File CTRs Instead of Form 

8300 

Under FinCEN’s regulations that 

apply to a broad range of persons—not 

just financial institutions—investment 


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116 31 CFR 1010.330; 26 CFR 1.6050I–1. 

‘‘Currency’’ includes cashier’s checks, bank drafts, 

traveler’s checks, and money orders in face amounts 

of $10,000 or less, if the instrument is received in 

a ‘‘designated reporting transaction.’’ 31 CFR 

1010.330(c)(1)(ii)(A). A ‘‘designated reporting 

transaction’’ is defined as the retail sale of a 

consumer durable, collectible, or travel or 

entertainment activity. 31 CFR 1010.330(c)(2). In 

addition, an investment adviser would need to treat 

the instruments as currency if the adviser knows 

that a customer is using the instruments to avoid 

the reporting of a transaction on Form 8300. 31 

CFR. 1010.330(c)(1)(ii)(B). 

117See 31 CFR 1010.330(a) (stating that 

§ 1010.330 [the BSA provision requiring the filing 

of the Form 8300] ‘‘does not apply to amounts 

received in a transaction reported under 31 U.S.C. 

5313 and 31 CFR 1010.311.’’). To the extent an 

investment adviser conducts transactions other than 

in currency (as defined in 31 CFR 1010.100(m) for 

purposes of the CTR requirement), it would be 

exempt from reporting such transactions because 

the Form 8300 requirement does not apply to such 

transactions. 

118See, e.g., 31 U.S.C. 5313(a); 31 U.S.C. 5326. 

119See 31 CFR 1010.311, 1010.313(b). Multiple 

transactions must be treated as a single transaction 

if they are conducted by or on behalf of the same 

person and result in cash in or cash out of more 

than $10,000 during any one business day. A Form 

8300, meanwhile, must be filed when currency is 

received in one transaction or two or more related 

transactions. Transactions conducted between a 

payer (or its agent) and a recipient in a 24-hour 

period would be treated as related. Furthermore, a 

distinction is drawn between transactions and the 

receipt of payments. Installment payments made 

within a period of 12 months may need to be 

aggregated and reported on a Form 8300. See 31 

CFR 1010.330(b)(3). 

120 Id. 

121Currently an investment adviser can report a 

suspicious transaction voluntarily by checking box 

1(b) in the Form 8300. In addition to the 

requirement that an investment adviser report on a 

CTR, under the proposed rule, an investment 

adviser would also be required to file a SAR if a 

suspicious transaction exceeds the threshold 

amount. 

122See 12 U.S.C. 1953; 31 U.S.C. 5311; and 31 

U.S.C. 5312(a)(2). 

123The Recordkeeping Rule is codified at 31 CFR 

1010.410(e) and 1020.410(a), but only 1010.410(e) 

is relevant here: 1020.410(a) describes the 

recordkeeping requirements for banks, while those 

for nonbank financial institutions are described in 

1010.410(e). The Travel Rule, as codified at 31 CFR 

1010.410(f), applies to both bank and nonbank 

financial institutions. See FinCEN, Board of 

Governors of the Federal Reserve System, 

Amendment to the Bank Secrecy Act Regulations 

Relating to Recordkeeping for Funds Transfers and 

Transmittals of Funds by Financial Institutions, 60 

FR 220 (Jan. 3, 1995); FinCEN, Amendment to the 

Bank Secrecy Act Regulations Relating to Orders for 

Transmittals of Funds by Financial Institutions, 60 

FR 234 (Jan. 3, 1995). 

124Specifically, proposed 31 CFR 1032.400 would 

permit an investment adviser to deem requirements 

in Subpart D to be satisfied for any mutual fund it 

advises that is subject to these same reporting 

requirements under another provision of Subpart D. 

125See 31 CFR 1010.410(e), (f); 31 CFR 

1020.410(a). Financial institutions are also required 

to retain records for five years. See 31 CFR 

1010.430(d). 

126See 31 CFR 1010.100(ddd) (defining 

‘‘transmittal of funds’’); see also 31 CFR 

1010.100(aa), (qq), (ggg) (defining ‘‘intermediary 

financial institution,’’ ‘‘recipient’s financial 

institution,’’ and ‘‘transmittor’s financial 

institution’’ to include both bank and nonbank 

financial institutions). 

127See 31 CFR 1010.410(e)(1)(i), (e)(2). 

128See 31 CFR 1010.410(e)(1)(iii), (e)(3) 

(information that the recipient’s financial 

institution must obtain or retain). 

advisers are currently required to file 

reports for the receipt of more than 

$10,000 in currency and certain 

negotiable instruments using joint 

FinCEN/Internal Revenue Service Form 

8300.116 By defining investment 

advisers as ‘‘financial institutions’’ 

under the BSA, the proposed rule would 

require investment advisers to file CTRs 

with FinCEN pursuant to 31 CFR 

1010.311 instead of filing reports using 

Form 8300.117

The BSA authorizes FinCEN to 

promulgate regulations requiring 

financial institutions to file reports 

when they participate in certain types of 

financial transactions.118 Pursuant to 

this authority, 31 CFR 1010.311 requires 

‘‘financial institutions’’ (other than 

casinos) to file CTRs for ‘‘each deposit, 

withdrawal, exchange of currency or 

other payment or transfer, by, through, 

or to such financial institution which 

involves a transaction in currency of 

more than $10,000,’’ unless subject to an 

applicable exemption. FinCEN seeks to 

extend this requirement to investment 

advisers under the proposed rule. This 

proposed rule would also add several 

provisions, §§ 1032.310 to 1032.315, 

specifying how investment advisers 

should fulfill their proposed CTR 

obligations. 

The threshold in 31 CFR 1010.311 

applies to transactions in currency of 

more than $10,000 conducted during a 

single business day.119 A financial 

institution must treat multiple 

transactions conducted in one business 

day as a single transaction if the 

financial institution has knowledge that 

the transactions are conducted by or on 

behalf of the same person.120 This same 

requirement would extend to 

investment advisers. 

To avoid duplicative requirements, 

investment advisers would no longer 

have to report applicable transactions 

involving certain negotiable instruments 

reportable on Form 8300. Moreover, 

since an investment adviser would be 

required to report suspicious 

transactions under the SAR rule 

proposed in this rulemaking, investment 

advisers would no longer need to use 

Form 8300 to voluntarily report 

suspicious transactions.121 Finally, 

imposing CTR and SAR requirements 

rather than a Form 8300 requirement is 

consistent with the obligations of 

certain other financial institutions, such 

as banks, broker-dealers, and mutual 

funds. 

D. Proposed Recordkeeping 

Requirements for Investment Advisers 

FinCEN has broad authority to impose 

recordkeeping requirements on financial 

institutions under the BSA.122 Pursuant 

to this authority, FinCEN has issued 

several recordkeeping regulations, 

codified as 31 CFR part 1010, subpart D 

(§§ 1010.400 to 1010.440), which apply 

broadly to financial institutions, subject 

to specified exceptions. By defining 

RIAs and ERAs as financial institutions, 

this proposed rule would apply these 

recordkeeping regulations to investment 

advisers. Specifically, 31 CFR 1032.410 

(cross-referencing 31 CFR 1010.410) 

would require investment advisers to 

comply with the Recordkeeping and 

Travel Rules, which are codified at 31 

CFR 1010.410(e) and 31 CFR 

1010.410(f), respectively, for the 

purposes of this proposed rule.123 The 

proposed regulations would not require 

investment advisers to comply with 

these recordkeeping requirements with 

respect to any mutual fund that it 

advises.124

Under the Recordkeeping and Travel 

Rules, financial institutions must create 

and retain records for transmittals of 

funds and ensure that certain 

information pertaining to the transmittal 

of funds ‘‘travels’’ with the transmittal 

to the next financial institution in the 

payment chain.125 The Recordkeeping 

and Travel Rules apply to transmittals 

of funds that equal or exceed $3,000. 

With certain exceptions, ‘‘transmittal of 

funds’’ includes funds transfers 

processed by banks, as well as similar 

payments where one or more of the 

financial institutions processing the 

payment (e.g., the transmittor’s financial 

institution, an intermediary financial 

institution, or the recipient’s financial 

institution) is not a bank.126

When a financial institution accepts 

and processes a payment sent by or to 

its customer, then the financial 

institution would be the ‘‘transmittor’s 

financial institution’’ or the ‘‘recipient’s 

financial institution,’’ respectively. The 

Recordkeeping and Travel Rules require 

the transmittor’s financial institution to 

obtain and retain the name, address, and 

other information about the transmittor 

and the transaction.127 The 

Recordkeeping Rule also requires the 

recipient’s financial institution (and in 

certain instances, the transmittor’s 

financial institution) to obtain or retain 

identifying information on the 

recipient.128 And the Travel Rule 

requires that certain information 

obtained or retained ‘‘travels’’ with the 


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129See 31 CFR 1010.410(f) (information that must 

‘‘travel’’ with the transmittal order); 31 CFR 

1010.100(eee) (defining ‘‘transmittal order’’). 

130See 31 CFR 1010.410(e)(6), (f)(4); 31 CFR 

1020.410(a)(6). As relevant here, § 1010.410(e)(6)(i) 

excludes from the requirements of the 

Recordkeeping Rule ‘‘[t]ransmittals of funds where 

the transmitter and the recipient’’ are certain types 

of listed financial institutions. Section 

1010.410(f)(4) excludes these same transmittals 

from the Travel Rule. The proposed rule would 

amend § 1010.410(e)(6) to add ‘‘investment 

advisers’’ to its list of financial institutions. 

131See 31 CFR 1010.100(eee)(2). 

132See 31 CFR 1010.410(a)–(c). Financial 

institutions must retain these records for a period 

of five years. 31 CFR 1010.430(d). 

133See 31 CFR 1010.410(a)–(c). 

134 31 U.S.C. 5311(2), 5318(h)(1). 

135Annunzio-Wylie Anti-Money Laundering Act, 

Title XV of the Housing and Community 

Development Act of 1992, Public Law 102–550. 

136 31 U.S.C. 5318(h)(1)(A)–(D). 

137Section 352(a) of the Act, which became 

effective on April 24, 2002, amended 31 U.S.C. 

5318(h). 

138Public Law 116–283 (Jan. 1, 2021); see 31 

U.S.C. 5318(h)(4)(D) (as amended by AML Act 

section 6101(b)(2)(C)). 139See FinCEN Regulatory Agenda (Spring 2023), 

Establishment of National Exam and Supervision 

Priorities, available at https://www.reginfo.gov/ 

public/do/eAgendaViewRule?pubId=

202304&RIN=1506-AB52. 140 31 U.S.C. 5318(h)(2)(A). 

transmittal order through the payment 

chain.129

Under the proposed rule, however, 

some transmittals involving investment 

advisers would fall within an existing 

exception to the Recordkeeping and 

Travel Rules designed to exclude 

transmittals of funds from these Rules’ 

requirements when certain categories of 

financial institutions are the transmitter 

and recipient.130 The proposed 

application of this exception to 

investment advisers is intended to 

provide investment advisers with 

treatment similar to that of banks, 

brokers or dealers in securities, futures 

commission merchants, introducing 

brokers in commodities, and mutual 

funds. 

Additionally, FinCEN recognizes that 

investment advisers operate varying 

business models and, that in some 

circumstances, an adviser would not 

conduct transactions that meet the 

definition of ‘‘transmittal order.’’ For 

example, in some advisory 

relationships, when an investment 

adviser receives instructions from a 

customer, the investment adviser would 

not ‘‘be reimbursed by debiting an 

account of, or otherwise receiving 

payment from,’’ the customer, such that 

the investment adviser’s receipt of 

instructions from a customer would not 

meet the definition of transmittal 

order.131

Because FinCEN is proposing to 

include investment advisers in the 

definition of financial institutions, 

investment advisers would be required 

to comply with the Recordkeeping and 

Travel Rules when they engage in 

transactions that meet the definition of 

a transmittal order. FinCEN understands 

that the collection of at least some of 

this information would be required for 

accounting or other purposes and seeks 

comment on the extent to which 

investment advisers or other BSAdefined financial institutions regularly 

collect information that would be 

required under the Recordkeeping and 

Travel Rules. Similarly, FinCEN seeks 

comment on understanding the 

structures that investment advisers use 

to be credited by customers who seek to 

wire funds out of their accounts with 

the investment adviser. FinCEN seeks 

comment on how investment advisers 

work with qualified custodians to 

maintain separate accounts to manage 

customers’ funds, including for wire 

transfers. FinCEN is also seeking 

comment on whether investment 

advisers should be required to comply 

with the Recordkeeping and Travel 

Rules as proposed, or if the 

Recordkeeping and Travel Rules should 

only apply in certain circumstances. 

Finally, the proposed rule would 

subject investment advisers to 

requirements to create and retain 

records for extensions of credit and 

cross-border transfers of currency, 

monetary instruments, checks, 

investment securities, and credit.132

These requirements currently apply to 

transactions by other BSA-defined 

financial institutions in amounts 

exceeding $10,000.133

E. Anti-Money Laundering and 

Countering the Financing of Terrorism 

Programs 

The BSA requires financial 

institutions to establish reasonably 

designed risk-based AML/CFT programs 

to combat the laundering of money and 

financing of terrorism through the 

institution.134 The Annunzio-Wylie 

Anti-Money Laundering Act of 1992 

amended the BSA by authorizing 

Treasury to issue regulations requiring 

financial institutions, as defined in BSA 

regulations, to maintain ‘‘minimum 

standards’’ of an anti-money laundering 

program.135 These anti-money 

laundering programs must include, at a 

minimum, the development of internal 

policies, procedures, and controls; the 

designation of a compliance officer; an 

ongoing employee training program; and 

an independent audit function to test 

programs.136 The USA PATRIOT Act 

further amended the BSA to expand 

AML program rules applicable to banks 

to cover certain other industries.137 The 

requirements for an anti-money 

laundering program were further 

amended by section 6101(b) of the AML 

Act of 2020 (AML Act), which among 

other things, expanded the BSA’s 

program rule requirement to include a 

reference to CFT in addition to AML.138

FinCEN intends to implement more 

specific changes to AML/CFT program 

requirements as a result of section 

6101(b) of the AML Act through a 

separate rulemaking process.139 FinCEN 

does not intend to address those more 

specific changes as part of this 

rulemaking. 

The BSA authorizes FinCEN, after 

consultation with the appropriate 

Federal functional regulator (for 

investment advisers, the SEC), to further 

prescribe minimum standards for such 

AML/CFT programs.140 In developing 

this proposed rule, FinCEN consulted 

and coordinated with the SEC staff, 

including regarding the statutorily 

specified factors set out in 31 U.S.C. 

5318(h)(2)(B). These factors are: 

• financial institutions are spending 

private compliance funds for a public 

and private benefit, including protecting 

the United States financial system from 

illicit finance risks; 

• the extension of financial services 

to the underbanked and the facilitation 

of financial transactions, including 

remittances, coming from the United 

States and abroad in ways that 

simultaneously prevent criminal 

persons from abusing formal or informal 

financial services networks are key 

policy goals of the United States; 

• effective anti-money laundering and 

countering the financing of terrorism 

programs safeguard national security 

and generate significant public benefits 

by preventing the flow of illicit funds in 

the financial system and by assisting 

law enforcement and national security 

agencies with the identification and 

prosecution of persons attempting to 

launder money and undertake other 

illicit activity through the financial 

system; 

• anti-money laundering and 

countering the financing of terrorism 

programs should be— 

Æ reasonably designed to assure and 

monitor compliance with the 

requirements of the BSA and regulations 

promulgated under the BSA; and 

Æ risk-based, including ensuring that 

more attention and resources of 

financial institutions should be directed 

toward higher-risk customers and 

activities, consistent with the risk 

profile of a financial institution, rather 

than toward lower-risk customers and 

activities. 


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141Further discussion relevant to each factor may 

be found at: Factor (i): the regulatory impact 

analysis at section VII and other discussions of the 

costs and benefits of the proposed rule; Factor (ii): 

we believe that this factor is not relevant to the 

proposed rule because investment advisers 

generally do not provide services to the unbanked, 

process remittances, or participate in informal 

financial networks. This may be inferred from the 

risk discussion at section II.C and accompanying 

discussions of the structure of the investment 

advisory industry; and Factor (iii): the risk analysis 

at section II.C; Factor (iv): the risk analysis at 

section II.C and the discussion of building upon 

existing requirements and examination programs in 

this section and at section IV.B. 

142Additionally, 31 CFR subpart B contains 

general provisions applicable generally to financial 

institutions’ AML/CFT programs. Proposed 

§ 1032.200 would subject investment advisers those 

general provisions in subpart B. 

143See 15 U.S.C. 80b–4(a) (requiring investment 

advisers to make and retain records as defined in 

section 3(a)(37) of the Exchange Act and to make 

and disseminate reports as prescribed by the SEC). 

144See 17 CFR 204–2 (books and records to be 

maintained by investment advisers). 

145See, e.g., 15 U.S.C. 80b–6(1)–(2)), (4) 

(prohibiting any investment advisers from engaging 

in any activity that would defraud a client or 

prospective client). See also 17 CFR 275.206(4)–8 

(prohibiting any investment advisers from making 

false or misleading statements to, or otherwise 

defrauding, investors or prospective investors to 

pooled investment vehicles). 

146 17 CFR 275.206(4)–7(a). 

147 17 CFR 275.206(4)–7(b), (c). 

148See, e.g., 15 U.S.C. 80b–6(1)–(2), (4); 17 CFR 

275.204–4; 17 CFR 275.206(4)–5; 17 CFR 

275.206(4)–8. 

149See SIFMA No-Action Letter, supra n. 52. See 

also 31 CFR 1023.220(a)(6) (CIP rule permitting a 

financial institution to rely on another financial 

institution to perform all or part of its obligations 

to verify the identity of its customers as required 

by 31 U.S.C. 5318(h)). 

150See 2016 Investment Management Compliance 

Testing Survey (2016 IMCTS Survey), p.21, https:// 

www.investmentadviser.org/eweb/docs/ 

Publications_News/Reports_and_Brochures/ 

Investment_Management_Compliance_Testing_

Surveys/2016IMCTppt.pdf. This survey included 

responses from compliance officers at 730 RIAs and 

is the most recent IMCTS survey to have asked 

detailed questions about AML policies and 

programs. 

FinCEN has considered these factors 

in section 5318(h)(2)(B) in the drafting 

of this proposed rule. In proposing this 

rule, FinCEN has considered the fact 

that comprehensive AML/CFT 

requirements for investment advisers, 

which would require investment 

advisers to have effective AML/CFT 

programs and subject them to SAR 

reporting requirements, would aid in 

preventing the flow of illicit funds in 

the financial system and in assisting law 

enforcement and national security 

agencies with the identification and 

prosecution of those who attempt to 

launder money and undertake other 

illicit financial activity. Additionally, 

FinCEN recognizes that AML/CFT 

programs at investment advisers should 

be reasonably designed and risk-based 

consistent with investment advisers’ 

respective risk profiles, and therefore is 

proposing an AML/CFT program rule 

that requires policies, procedures, and 

internal controls reasonably designed to 

prevent the investment adviser from 

being used for money laundering, 

terrorist financing, or other illicit 

finance activities, as well as risk-based 

procedures that consider an investment 

adviser’s risk profile. Further, as 

discussed in the Regulatory Analysis at 

section VII, FinCEN has analyzed the 

financial costs to investment advisers in 

imposing AML/CFT obligations, 

including AML/CFT program 

requirements and SAR filing 

requirements, and has determined that 

the public and private benefit to this 

proposed rule would outweigh the 

private compliance costs.141

This proposed rule, by designating 

investment advisers as financial 

institutions, would subject investment 

advisers to AML/CFT program 

requirements, as reflected in proposed 

§ 1032.210.142

Investment advisers are already 

subject to other regulations similar in 

certain ways to the AML/CFT program 

requirements FinCEN is proposing, and 

thus should be well-positioned to 

extend their practices to incorporate 

proposed AML/CFT requirements. RIAs 

are currently subject to Federal 

securities laws, which require the 

establishment of a variety of policies, 

procedures, and controls. For example, 

the Advisers Act requires an RIA to 

maintain certain books and records, as 

prescribed by the SEC.143 Under 17 CFR 

275.204–2, an RIA is required to keep 

certain books and records that relate to 

its investment advisory business.144

Under 17 CFR 275.203–1 and 275.204– 

4, RIAs and ERAs, respectively, are also 

required to complete and submit Form 

ADV to the SEC. The Advisers Act also 

prohibits an investment adviser from 

engaging in fraudulent, deceptive, and 

manipulative conduct.145 SEC rules 

further require RIAs to adopt and 

implement written policies and 

procedures reasonably designed to 

prevent violations of the Advisers Act 

and the rules that the SEC has adopted 

under that Act.146 RIAs must conduct 

annual reviews to ensure the adequacy 

and effectiveness of their policies and 

procedures and must designate a chief 

compliance officer responsible for 

administering the policies and 

procedures.147 ERAs are also subject to 

Federal securities laws governing the 

securities industry, required to complete 

and submit some sections of Form ADV, 

and comply with other select 

requirements of the Advisers Act.148

While ERAs may not have the full 

compliance infrastructure that RIAs 

have, their existing compliance 

obligations nonetheless offer a point of 

reference and relevant experience for 

implementing the AML/CFT 

requirements in the proposed rule. 

As FinCEN has noted, the AML/CFT 

program requirement is not a one-sizefits-all requirement but rather is riskbased and is intended to give 

investment advisers the flexibility to 

design their programs to identify and 

mitigate the specific risks of the 

advisory services they provide and the 

customers they advise. As such, ERAs 

would be able to tailor their AML/CFT 

programs to the specific risks, activities, 

and operations associated with their 

advisory business. Accordingly, FinCEN 

contemplates that investment advisers, 

as defined in the proposed rule, would 

be able to build upon existing policies, 

procedures, and internal controls, or the 

processes undertaken to establish those 

policies, procedures, and internal 

controls, to comply with the proposed 

AML/CFT requirements. 

Moreover, some investment advisers 

have already implemented AML/CFT 

programs either because they are dually 

registered as a broker-dealer, licensed as 

a bank, or affiliated with a broker-dealer 

or bank, or in conjunction with a SIFMA 

No-Action Letter permitting brokerdealers to rely on RIAs to perform some 

or all aspects of broker-dealers’ CIP 

obligations.149 For instance, according 

to the 2016 Investment Management 

Compliance Testing Survey of RIAs 

conducted by ACA Compliance Group 

and the Investment Adviser Association, 

76 percent of participants had adopted 

AML policies, and 40 percent of 

participants had adopted AML programs 

similar to the AML program 

requirements proposed in the Second 

Proposed Investment Adviser Rule.150

FinCEN requests comment on what CDD 

procedures RIAs and/or ERAs already 

have in place to comply with the SIFMA 

No-Action Letter. 

1. Overview of AML/CFT Program 

Requirement 

Section 1032.210(a)(1) of the 

proposed rule would require each RIA 

and ERA to develop and implement a 

written AML/CFT program that is riskbased and reasonably designed to 

prevent the investment adviser from 

being used for money laundering, 

terrorist financing, or other illicit 

finance activities. Each RIA and ERA 

would also be required to make its 

AML/CFT program available for 

inspection by FinCEN or the SEC. The 

minimum requirements for the AML/ 

CFT program are set forth in 


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151The legislative history of the BSA reflects that 

Congress intended that each financial institution 

should have some flexibility to tailor its program to 

fit its business, considering factors such as size, 

location, activities, and risks or vulnerabilities to 

money laundering. This flexibility is designed to 

ensure that all firms, from the largest to the 

smallest, have in place policies and procedures 

appropriate to monitor for money laundering. See 

USA PATRIOT Act of 2001: Consideration of H.R. 

3162 Before the Senate, 147 Cong. Rec. S10990–02 

(Oct. 25, 2001) (statement of Sen. Sarbanes); 

Financial Anti-Terrorism Act of 2001: 

Consideration Under Suspension of Rules of H.R. 

3004 Before the House of Representatives, 147 

Cong. Rec. H6938–39 (Oct. 17, 2001) (statement of 

Rep. Kelly) (provisions of the Financial AntiTerrorism Act of 2001 were incorporated as Title III 

in the Act). 152See 31 CFR part 1024. 

153FinCEN’s definition of a mutual fund under 

1010.100(gg) applies to an ETF as an ‘‘open-end 

company’’ (as the term is defined in section 5 of the 

Investment Company Act).’’ See supra n. 53. 

154FinCEN notes as well that the First Proposed 

Investment Adviser Rule would have permitted 

mutual funds to be excluded from the programs 

required of investment advisers covered by that 

proposed rule. Commenters to the Second Proposed 

Investment Adviser Rule, which would not have 

permitted such an exclusion, supported instead the 

2003 NPRM approach. 

§ 1032.210(b) and discussed in greater 

detail below. 

FinCEN reiterates that the proposed 

AML/CFT program requirement is not a 

one-size-fits-all requirement but is riskbased and must be reasonably designed. 

The ‘‘risk-based and reasonably 

designed’’ approach of the proposed 

rule is intended to give investment 

advisers the flexibility to design their 

programs so that they are commensurate 

with the specific risks of the advisory 

services they provide and the customers 

they advise.151 For example, large firms 

may assign responsibilities of the 

individuals and departments carrying 

out each aspect of the AML/CFT 

program, while smaller firms would be 

expected to adopt procedures that are 

consistent with their (often) simpler, 

more centralized organizational 

structures. This flexibility is designed to 

ensure that all firms subject to FinCEN’s 

AML/CFT program requirements, from 

the smallest to the largest, and the 

simplest to the most complex, have in 

place policies, procedures, and internal 

controls appropriate to their advisory 

business to prevent the investment 

adviser from being used to facilitate 

money laundering, terrorist financing, 

or other illicit finance activities and to 

achieve and monitor compliance with 

the applicable provisions of the BSA 

and FinCEN’s implementing 

regulations. FinCEN requests comment 

on whether existing requirements under 

the Advisers Act or existing policies and 

procedures to implement OFAC 

sanctions could assist investment 

advisers in complying with the 

proposed AML/CFT requirements. 

FinCEN also requests comment on 

whether any proposed requirements are 

duplicative of any existing 

requirements. Finally, FinCEN requests 

comment on whether there are certain 

services or activities provided by 

investment advisers where applying 

AML/CFT requirements would result in 

information of limited value to law 

enforcement and regulators. 

2. Scope 

As described above, the proposed rule 

would require all RIAs and ERAs to 

develop an AML/CFT program, and that 

program would be required to cover all 

advisory activities, with one exception: 

the program need not cover activities 

undertaken with respect to mutual 

funds, which have their own obligations 

under the BSA.152 As detailed below, 

advisory activities with respect to 

mutual funds would be exempt from the 

AML/CFT program requirements that 

would be applied in the proposed rule. 

An investment adviser would apply 

an AML/CFT program to all advisory 

activities other than with respect to 

mutual funds. Advisory activities 

subject to an AML/CFT program would 

include, for example, the management 

of customer assets, the provision of 

financial advice, the execution of 

transactions for customers, as well as 

other advisory activities. The 

requirements of the proposed rule 

would not apply to non-advisory 

services. One example of this would be 

in the context of private equity funds: 

fund personnel may play certain roles 

with respect to the portfolio companies 

in which the fund invests. Activities 

undertaken in connection with those 

roles (e.g., making managerial/ 

operational decisions about portfolio 

companies) would not be ‘‘advisory 

activities’’ for purposes of the rule. 

FinCEN requests comment on whether 

certain advisory activities pose a lower 

risk in all circumstances and on the 

challenges for advisers in complying 

with the proposed role when engaged in 

such activities. 

Certain commenters on the Second 

Proposed Investment Adviser Rule 

proposed to exempt some advisory 

activities, such as advising clients 

without managing client assets and 

acting as a subadviser, on the ground 

that such activities are lower risk. 

Assessing the risk of an adviser’s 

activities requires appreciation of the 

full context of the activity. For example, 

subadvisers and advisers who do not 

manage assets may nonetheless afford 

their clients access to the U.S. financial 

system, inadvertently guide the layering 

or integration of illicit proceeds or other 

illicit finance activity, or have 

relationships that provide insight to the 

investment adviser’s AML/CFT 

program. FinCEN is therefore proposing 

to include those activities within the 

scope of this proposed rule. As 

discussed in the comment request 

section below, FinCEN requests 

comment on whether certain 

subadvisory activities should be 

excluded from coverage of this proposed 

rule. 

Under the risk-based approach, an 

investment adviser would tailor its 

program according to the specific risks 

presented by its various activities. 

Factors that may indicate an activity or 

a customer is lower risk include the 

jurisdiction of registration of legal 

person customers, and whether the 

customer (where a legal person) is 

subject to U.S. AML/CFT regulatory 

requirements. 

(a) Mutual Funds 

FinCEN is proposing to exempt from 

the proposed requirements activities of 

investment advisers in advising mutual 

funds.153 FinCEN believes that this 

exemption is appropriate because of the 

regulatory and practical relationship 

between mutual funds and their 

investment advisers. Specifically, 

although mutual funds are distinct legal 

entities with distinct legal obligations, 

mutual funds typically do not have their 

own independent operations. Rather, 

mutual funds are entirely operated, and 

compliance with their legal obligations 

is undertaken, by their service provider 

entities, foremost amongst them their 

investment advisers. As a practical 

matter, we believe that any AML/CFT 

requirement imposed on an RIA to a 

mutual fund is already addressed by the 

existing AML/CFT requirements 

imposed on the mutual fund itself.154 In 

particular, we expect that the 

investment adviser to a mutual fund 

will have both (1) access to the exact 

same information concerning the 

mutual fund or its investors that is 

available to the mutual fund, in part in 

connection with its AML/CFT 

obligations and (2) a significant role 

generally in the operations of the 

mutual fund’s regulatory 

responsibilities, including its AML/CFT 

program. Consequently, we are 

proposing not to require investment 

advisers to mutual funds to include 

those mutual funds within the 

investment advisers’ own AML/CFT 

programs, as we believe including a 

mutual fund within its investment 


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155See 31 CFR 1010.100(gg); 31 CFR part 1024. 

156The Advisers Act does not distinguish 

between advisers and subadvisers; all are 

‘‘investment advisers.’’ See 76 FR 39646, 39680 (Jul. 

6, 2011) at n. 504 and accompanying text. 

157FinCEN notes that while broker-dealers in 

securities are subject to the full panoply of 

FinCEN’s regulations implementing the BSA, 

investment advisers would not immediately be 

subject to certain of those AML/CFT requirements, 

e.g., the CIP Rule, because the proposed rule does 

not include CIP requirements at this time. FinCEN 

intends to address CIP requirements in a 

subsequent joint rulemaking with the SEC, after 

notice-and-comment. 

158FinCEN notes that although certain insurance 

companies are required to establish and implement 

AML programs and report suspicious activity, the 

term ‘‘insurance company’’ is not included within 

the general definition of financial institution under 

FinCEN’s regulations. See 31 CFR 1010.100(t). 

Therefore, such insurance companies are not 

required to file CTRs with FinCEN or comply with 

the Recordkeeping and Travel Rules and other 

related recordkeeping requirements. Accordingly, 

FinCEN would not expect an insurance company 

that is affiliated with or owns an investment adviser 

to design an enterprise-wide AML/CFT compliance 

program that would subject the insurance company 

to AML/CFT requirements not required by 

FinCEN’s regulations. Conversely, FinCEN would 

not expect a bank, which is subject to the full 

panoply of FinCEN’s regulations implementing the 

BSA, to design an enterprise-wide AML/CFT 

compliance program that would subject an affiliated 

or controlled investment adviser to AML/CFT 

requirements that would not be required by the 

proposed rule. 

adviser’s AML/CFT program would be 

redundant. This exemption is 

permissive and not mandatory; an 

investment adviser could decide to 

include the mutual funds it advises in 

complying with any of the investment 

adviser’s proposed requirements. 

Mutual funds are already subject to 

comprehensive AML/CFT obligations 

under the BSA and are required to, 

among other things, establish AML/CFT 

and customer identification programs, 

conduct CDD, and report suspicious 

activity, among other obligations.155

FinCEN believes that, currently, these 

requirements sufficiently mitigate the 

money laundering, terrorist financing, 

and other illicit finance risks associated 

with mutual funds and those funds’ 

investors to justify this exemption. 

FinCEN is requesting comment on 

whether to exempt mutual funds from 

coverage in an adviser’s AML/CFT 

program. FinCEN also requests 

comment on whether there are other 

categories of entities that, like mutual 

funds, could be reasonably exempted 

from an investment adviser’s AML/CFT 

program. 

FinCEN is also proposing to exempt 

investment advisers from having to 

comply with the reporting and 

recordkeeping requirements of part 

1032, subparts C and D, for its mutual 

fund customers. FinCEN believes that 

the proposed regulatory text is 

sufficiently clear that these 

subparagraphs would not apply with 

respect to mutual fund customers, 

because the internal policies, 

procedures, and controls to comply with 

those requirements are closely linked to 

the AML/CFT program requirement. 

FinCEN requests comment on whether 

additional regulatory text in those 

subparts is needed to clarify this. 

FinCEN also requests comment on 

whether the exemption should be 

dependent on the nature of the 

relationship between the investment 

adviser and its mutual fund customer, 

and whether the exemption would 

avoid duplication of existing AML/CFT 

requirements. Lastly, FinCEN requests 

comment on whether investment 

advisers to mutual funds should still be 

required to monitor for and file SARs. 

(b) Provision of Other Advisory Services 

FinCEN understands that investment 

advisers provide a range of services that 

could affect the nature of their AML/ 

CFT programs. An investment adviser 

may provide customers with advisory 

services that do not include the 

management of customer assets or 

knowledge of customers’ investment 

decisions, such as pension consulting, 

securities newsletters, research reports, 

or financial planning. 

In the investment advisory industry, 

an adviser may also act as the ‘‘primary 

adviser’’ or ‘‘subadviser.’’ 156 Generally, 

the primary adviser contracts directly 

with the client, and a subadviser has 

contractual privity with the primary 

adviser, though there is variation across 

the sector with respect to the 

relationship and function between 

primary advisers and subadvisers. 

Because subadvisory services are a 

subcategory of advisory services, the 

proposed rule would apply to 

investment advisers who provide 

subadvisory services. 

FinCEN requests comment on 

whether specific services provided by 

investment advisers, such as advisory 

services that do not involve 

management of client assets or 

subadvisory services, should be 

included or excluded from coverage of 

this proposed rule. FinCEN also 

requests comment on any alternative 

approaches for addressing compliance 

with the proposed rule when advisers 

provide particular services, such as 

allowing subadvisers to rely on the 

primary adviser or allowing the primary 

adviser to delegate all AML/CFT 

obligations to the subadviser. FinCEN 

further requests comment on whether 

there is an increased risk for a 

subadviser when providing advisory 

services to a customer with a primary 

adviser that is not an investment adviser 

as defined in the proposed rule. FinCEN 

also requests comment on the extent a 

subadviser’s AML/CFT program would 

overlap with the primary adviser’s 

program and how duplication could be 

mitigated. Finally, FinCEN requests 

comment on whether there are similar 

arrangements where an investment 

adviser may be sub-contracted to 

provide services to another investment 

adviser that should or should not be in 

the scope of an investment adviser’s 

AML/CFT program. 

3. Dually Registered Investment 

Advisers and Advisers Affiliated With 

or Subsidiaries of Entities Required To 

Establish AML/CFT Programs 

According to a Treasury review of 

Form ADV filings, approximately three 

percent of RIAs were dually registered 

with the SEC as investment advisers and 

broker-dealers in securities, and 

approximately 20 percent of RIAs may 

be affiliated with, or subsidiaries of, 

banks or broker-dealers, which are 

required to establish AML/CFT 

programs. With respect to an investment 

adviser that is dually registered as a 

broker-dealer or is a bank (or is a bank 

subsidiary), FinCEN is not proposing to 

require such an adviser to establish 

multiple or separate AML/CFT 

programs so long as a comprehensive 

AML/CFT program covers all of the 

entity’s relevant business and activities 

that are subject to BSA requirements. 

The program should be designed to 

address the different money laundering, 

terrorist financing, or other illicit 

finance activity risks posed by the 

different aspects of the entities’ 

businesses and, accordingly satisfy each 

of the risk-based AML/CFT program 

requirements to which it is subject in its 

capacity as both an investment adviser 

and broker-dealer or bank.157 Similarly, 

an investment adviser affiliated with, or 

a subsidiary of, another entity required 

to establish an AML/CFT program in 

another capacity would not be required 

to implement multiple or separate 

programs as one single program can be 

extended to all affiliated entities that are 

subject to the BSA, so long as it is 

designed to identify and mitigate the 

different money laundering, terrorist 

financing, and other illicit finance 

activity risks posed by the different 

aspects of the entity’s business and 

satisfy each of the risk-based AML/CFT 

program and other BSA requirements to 

which the organization is subject in all 

of its regulated capacities, as for 

example an investment adviser and a 

bank or insurance company.158


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159FinCEN understands that some fund 

administrators are nonbank subsidiaries of U.S. 

bank holding companies and, as such, are subject 

to the global AML policies and procedures of these 

U.S. institutions. FinCEN also understands that 

some investment advisers delegate AML 

compliance to administrators located outside the 

United States. These administrators are generally 

located in jurisdictions that require regulated 

entities to have their own AML/CFT policies, 

procedures, and controls. See, e.g., Managed Funds 

Association, Letter to Financial Crimes Enforcement 

Network, Re: AML Program and SAR Filing 

Requirements for Registered Investment Advisers 

(RIN: 1506–AB10), Docket Number FinCEN–2014– 

003 (Nov. 2, 2015). 

FinCEN recognizes the importance of 

enterprise-wide compliance and, 

therefore, believes it would be beneficial 

and cost-effective for these types of 

entities to implement one 

comprehensive AML/CFT program that 

includes all activities covered by 

FinCEN’s regulations. However, these 

entities would not be required to 

establish one comprehensive AML/CFT 

program; they may instead establish 

multiple programs to satisfy their AML/ 

CFT obligations. What would be 

required, however, is that the covered 

investment adviser and its affiliated 

financial institution(s) identify and 

mitigate the risks arising across the 

organization or organizations—for 

example, as they relate to one customer 

served by both an affiliated bank and an 

investment adviser. If each of these 

affiliates conducts due diligence on the 

same customer individually, without 

assessing all of this information between 

both aspects of its business, these 

businesses’ understanding of their 

shared customer would be incomplete, 

which could lead to a less effective 

understanding of risk and detection of 

suspicious activity. 

FinCEN is requesting comments on 

how dually registered investment 

advisers and broker-dealers, or 

investment advisers affiliated with, or a 

subsidiary of, a bank, broker-dealer, or 

other BSA-defined financial institution, 

should apply their existing AML/CFT 

program to their investment advisory 

activities. FinCEN also requests 

comment on whether RIAs or ERAs that 

are affiliated with a bank or brokerdealer presently apply enterprise-wide 

AML/CFT requirements, and whether 

certain AML/CFT requirements are 

presently tailored for advisory activities. 

4. Delegation of Duties 

Investment advisers’ services 

routinely involve other financial 

institutions that have their own AML/ 

CFT program requirements, such as 

broker-dealers, banks, mutual funds, as 

well as other investment advisers. 

FinCEN also recognizes that an 

investment adviser may conduct some 

of its operations through agents or thirdparty service providers, such as brokerdealers in securities (including prime 

brokers), custodians, transfer agents, 

and fund administrators. For instance, 

many investment advisers that operate 

private funds delegate the 

implementation and operation of certain 

aspects of their AML program to a third 

party, most often the fund’s 

administrator, which is an independent 

third-party that provides valuation, 

administrative, and other services to the 

fund and its investors.159

FinCEN recognizes that it is common 

in the advisory business to delegate a 

range of compliance, administrative, 

and other activities to third-party 

providers. In the proposed rule, similar 

to other BSA-defined financial 

institutions, FinCEN would permit an 

investment adviser to delegate 

contractually the implementation and 

operation of aspects of its AML/CFT 

program. However, if an investment 

adviser delegates the implementation 

and operation of any aspects of its AML/ 

CFT program to another financial 

institution, agent, fund administrator, 

third-party service provider, or other 

entity, the investment adviser would 

remain fully responsible and legally 

liable for, and need to demonstrate, the 

program’s compliance with AML/CFT 

requirements and FinCEN’s 

implementing regulations. The 

investment adviser also would be 

required to ensure that FinCEN and the 

SEC are able to obtain information and 

records relating to the AML/CFT 

program. 

Because investment advisers operate 

through a variety of different business 

models, each investment adviser may 

decide which aspects (if any) of its 

AML/CFT program are appropriate to 

delegate. In certain circumstances, for 

instance, an investment adviser may 

deem it appropriate to delegate certain 

aspects of its suspicious activity 

monitoring and reporting obligation to a 

third party, such as a qualified 

custodian. 

In addition to these financial 

institutions, there are other third-party 

service providers that play an important 

role in advisory activities, such as fund 

administrators. As FinCEN understands 

it, for advisers who presently implement 

AML/CFT policies and procedures, it is 

often current practice for those advisers 

to delegate the administration of AML/ 

CFT policies and procedures to their 

fund administrator, along with nonAML/CFT activities such as processing 

subscriptions, transfers, and 

redemptions administrators. Some fund 

administrators are subsidiaries of U.S. 

financial or bank holding companies 

that may have enterprise-wide AML/ 

CFT programs, while those in foreign 

jurisdictions may be subject to AML/ 

CFT requirements under local law. 

However, as noted above, liability for 

noncompliance would remain with the 

investment adviser. The investment 

adviser would still be required to 

identify and document the procedures 

implemented to address its vulnerability 

to money laundering, terrorist financing, 

and other illicit finance activity, and 

then undertake reasonable steps to 

assess whether the service provider 

carries out such procedures effectively. 

For example, it would not be sufficient 

to simply obtain a ‘‘certification’’ from 

a service provider that the service 

provider has a satisfactory AML/CFT 

program. Similarly, if an investment 

adviser delegates the responsibility for 

suspicious activity reporting to an agent 

or a third-party service provider, the 

adviser remains responsible for its 

compliance with the requirement to 

report suspicious activity, including the 

requirement to maintain SAR 

confidentiality. 

FinCEN requests comment on the 

scope of information fund 

administrators currently collect that 

would support implementation of the 

proposed rule, and on the practical 

effect of permitting an investment 

adviser to delegate some or all of the 

requirements in the proposed rule. 

FinCEN also requests comment on the 

quality of AML/CFT programs 

implemented by fund administrators 

whose operations are primarily 

conducted outside of the United States, 

the extent to which these fund 

administrators are able to collect and 

provide information on the natural 

person and legal entity investors in 

offshore pooled investment vehicles 

when that information is requested by a 

U.S. investment adviser, the ability of 

the U.S. investment adviser to 

effectively monitor the implementation 

of proposed requirements by fund 

administrators, and the quality of 

suspicious activity or suspicious 

transaction reports submitted by those 

fund administrators. 

5. AML/CFT Program Approval 

Section 1032.210(a)(2) of the 

proposed rule would require that each 

investment adviser’s AML/CFT program 

be approved in writing by its board of 

directors or trustees, or if it does not 

have a board, by its sole proprietor, 

general partner, trustee, or other persons 

that have functions similar to a board of 

directors. This provision of the 

proposed rule would ensure that the 


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160See discussion in section II.B, infra, for a 

discussion of existing Advisers Act recordkeeping 

and reporting obligations that may enable 

investment advisers to adapt existing policies, 

procedures, and internal controls. In addition, as 

noted above, according to one industry survey, as 

of 2016, 40 percent of participants had adopted 

AML programs similar to the AML program 

requirements proposed in the Second Proposed 

Investment Adviser Rule. 

161See 2023 Investment Company Factbook at 

p.2,17, supra n. 55. Unlike traditional mutual funds 

(or ‘‘open-end funds’’), closed-end funds are not 

required to buy back shares from shareholders. 

Closed-end funds sell their shares in a public 

offering. After that, their shares trade on national 

securities exchanges at market prices. The market 

price may be greater or less than the market value 

of the fund’s underlying investments. 

162For instance, in the Proposed Unregistered 

Investment Companies Rule, FinCEN proposed to 

exclude from the scope of its proposed AML 

requirements those funds that did not offer their 

investors the right to redeem any portion of their 

ownership interests within two years after those 

interests were acquired. See 68 FR at 60619. 

requirement to have an AML/CFT 

program receives the appropriate level 

of attention and is intended to be 

sufficiently flexible to permit an 

investment adviser to comply with this 

requirement based on its particular 

organizational structure. The proposed 

rule would require an investment 

adviser’s written program to be made 

available for inspection by FinCEN or 

the SEC. 

6. The Required Elements of an AntiMoney Laundering/Countering the 

Financing of Terrorism Program 

(a) Required Policies, Procedures, and 

Internal Controls 

Section 1032.210(b)(1) would require 

an investment adviser to establish and 

implement policies, procedures, and 

internal controls reasonably designed to 

prevent money laundering, terrorist 

financing, and other illicit finance 

activities. As noted in section II, these 

risks may include not only activities 

tied to money laundering, such as fraud 

or corruption, but also any affiliation or 

relationship with either persons 

designated by the United States or other 

jurisdictions with which the United 

States regularly coordinates sanctions 

actions, or foreign state-sponsored 

investment activity in critical or 

emerging technologies. FinCEN 

recognizes that some types of customers 

or customer activities would pose 

greater risks for money laundering, 

terrorist financing, or other illicit 

finance activity than others. 

Generally, under the proposed rule, 

an investment adviser would be 

required to review, among other things, 

the types of advisory services it 

provides and the nature of the 

customers it advises to identify the 

investment adviser’s vulnerabilities to 

money laundering, terrorist financing, 

and other illicit finance activities. It 

would also need to review investment 

products offered, distribution channels, 

intermediaries that it may operate 

through, and geographic locations of 

customers and business activities. 

Accordingly, an investment adviser’s 

assessment of the risks presented by the 

different types of advisory services it 

provides to such customers would need 

to, among other factors, consider the 

types of accounts offered (e.g., managed 

accounts), the types of customers 

opening such accounts, the geographic 

location of such customers, and the 

sources of wealth for customer assets. 

FinCEN expects that investment 

advisers would generally be able to 

adapt existing policies and procedures 

to meet this requirement.160 FinCEN 

requests comment on whether it should 

require an investment adviser to include 

all the advisory services it provides in 

its AML/CFT program. 

The discussion below focuses on how 

an investment adviser’s AML/CFT 

program may address the money 

laundering, terrorist financing, or other 

illicit finance risks that may be 

presented by certain specific types of 

advisory customers, as well as how an 

adviser’s program may address the risks 

presented by certain specific advisory 

services provided to those customers. In 

addition, this section describes 

FinCEN’s expectations under a riskbased approach regarding advisory 

services to wrap fee programs. FinCEN 

requests comment on whether closedend registered funds, wrap fee 

programs, or other types of accounts 

advised by investment advisers should 

be, on a risk-basis, reasonably exempted 

from an investment adviser’s AML/CFT 

program. 

Registered Closed-End Funds. Based 

on one available estimate, at the end of 

2022, there were approximately 440 

registered closed-end funds that had 

approximately $250 billion in AUM.161

Unlike open-end funds, closed-end 

funds do not have an existing AML/CFT 

program or SAR requirement. Registered 

closed-end funds, however, are subject 

to comprehensive SEC regulation and 

oversight and typically trade in the 

secondary market through brokerdealers who have AML/CFT obligations 

and where there are additional required 

disclosures and greater transparency. 

For these reasons, although FinCEN is 

not proposing to exempt closed-end 

funds from the AML/CFT or SAR 

requirements in the proposed rule, 

FinCEN would expect, absent other 

indicators of high-risk activity, 

investment advisers could treat closedend funds as lower-risk for purposes of 

their AML/CFT programs. FinCEN 

requests comments on the money 

laundering, terrorist financing, and 

other illicit finance risks faced by 

closed-end funds, and how entities with 

existing AML/CFT requirements, such 

as banks and broker-dealers, apply those 

requirements to activity involving 

closed-end funds. 

Private Funds. As described above, 

the money laundering, terrorist 

financing, or illicit finance activity risk 

for private funds may vary with the 

individual fund’s investment strategy, 

targeted investors, and other 

characteristics. Some private funds have 

traditionally been seen as less attractive 

to certain illicit actors. For instance, due 

to their long-term investment focus and 

illiquid nature, certain private equity 

funds may be less likely to be used by 

money launderers, terrorist financiers, 

and others engaging in illicit finance.162

Other relevant characteristics of private 

funds include minimum subscription 

amounts, restrictions on the type of 

investors they can accept, and the fact 

that most funds prohibit the receipt of 

paper currency. However, those factors 

may not be a barrier to more 

sophisticated fraudsters or corrupt 

officials, among others, that have 

already placed their funds into a foreign 

bank and are seeking long-term returns 

outside of their home country. 

An investment adviser that is the 

primary adviser to a private fund or 

other unregistered pooled investment 

vehicle is required to make a risk-based 

assessment of the money laundering and 

terrorist financing risks presented by the 

investors in such investment vehicles by 

considering the same types of relevant 

factors, as appropriate, as the adviser 

would consider for clients for whom the 

adviser manages assets directly. As 

noted above, the risk-based approach of 

the proposed rule is intended to give 

investment advisers the flexibility to 

design their programs to meet the 

specific risks presented by their 

customers, including any funds they 

advise. In assessing the potential risk of 

a private fund under the proposed rule, 

investment advisers generally should 

gather pertinent facts about the structure 

or ownership of the fund, including 

both the extent to which they are 

provided with relevant information 

about the investors in that private fund, 

who may or may not themselves also be 

customers of the investment adviser, 

and the nature of such investor-related 

information that they receive. 


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163A ‘‘wrap fee program’’ for purposes of the 

proposed rule is a program under which investment 

advisory and brokerage execution services (as well 

as administrative expenses and other fees and 

expenses) are provided for a single ‘‘wrapped’’ (i.e., 

bundled) fee. 

164As noted in this NPRM, some investment 

advisers may implement enterprise-wide AML/CFT 

programs that are evaluated at the holding company 

level. It would not be consistent with the 

requirements of this proposed regulation for an 

employee at an affiliated financial institution, 

including the holding company, to be responsible 

for testing the adviser’s AML/CFT program, or carry 

out such testing, if the affiliate’s employee is 

responsible for administering the adviser’s AML/ 

CFT program. 

Under the proposed rule, where an 

investment adviser attempted to and 

was unable to obtain identifying 

information about the investors in a 

private fund, the private fund may pose 

a higher risk for money laundering, 

terrorist financing, or other illicit 

finance activity. When a private fund’s 

potential vulnerability to money 

laundering, terrorist financing, or other 

illicit finance activity is high, the 

adviser’s procedures would need to 

reasonably address these higher risks so 

that the adviser is able to prevent the 

investment adviser from being used for 

money laundering or the financing of 

terrorist activities, and to achieve and 

monitor compliance with the BSA 

(including to obtain sufficient 

information to monitor and report 

suspicious activity). FinCEN requests 

comment on what information is 

currently available to advisers to private 

funds regarding their investors that 

could help advisers comply with the 

proposed AML/CFT requirements. 

FinCEN also requests comment on 

whether a subadviser to a private fund 

or other unregistered pooled investment 

vehicle should be required to establish 

the same policies, procedures, and 

internal controls as when the primary 

adviser is the investment adviser, or 

should be required to mitigate the risks 

of money laundering, terrorist financing, 

or other illicit activity to the investing 

pooled investment vehicle’s investors, 

sponsoring entity, and/or 

intermediaries. 

FinCEN recognizes that certain 

private funds and other unregistered 

pooled investment vehicles may present 

lower risks for money laundering or 

terrorist financing than others. 

Consequently, FinCEN would not 

expect an investment adviser to risk-rate 

the advisory services it provides to a 

pooled investment vehicle that presents 

a lower risk the same as it might rate the 

advisory services it provides to other 

types of pooled investment vehicles that 

may present higher risks for attracting 

money launderers, terrorist financers, or 

other illicit actors. FinCEN requests 

comment on factors related to the 

activities, investors, or structure of 

private funds or other unregistered 

pooled investment vehicles that could 

be higher- or lower-risk. FinCEN also 

requests comment on how the proposed 

rule should apply to advisers who 

manage private funds that receive 

investments from in-funds or who have 

funds-of-funds who are investors. 

Wrap Fee Programs. In a wrap fee 

program, investment advisory and 

brokerage services are provided together 

as a single product.163 For the purposes 

of this discussion, FinCEN will focus on 

wrap fee arrangements where an 

investment adviser is solely acting as a 

portfolio manager and generally 

managing the customer account to a 

selected model. In these programs, even 

if both advisers or broker-dealers are 

providing services, there is a single 

‘‘relationship’’ entity that is responsible 

for the relationship with the customer, 

managing the account overall, and 

selecting the account strategy. That 

program sponsor has the primary 

relationship with the customer, which 

means that the program sponsor is 

typically best positioned to recognize 

illicit financial activity in the program. 

While FinCEN recognizes the 

characteristics described above 

regarding the most common structure of 

wrap fee programs, it is not proposing 

to exempt wrap fee programs from 

coverage of the proposed rule. 

Depending on the structure of the wrap 

fee program, the investment adviser may 

be best positioned to spot illicit finance 

activity (if, for example, it is the 

program sponsor). Moreover, even a 

non-sponsoring investment adviser may 

have additional insights into the activity 

of the wrap fee program. FinCEN 

requests comments on how the 

requirements of the proposed rule can 

be applied to advisers participating in a 

wrap fee program, to include when an 

adviser acting as portfolio manager is 

either affiliated or not affiliated with the 

sponsoring entity of the program. 

(b) Provide for Independent Testing for 

Compliance To Be Conducted by 

Company Personnel or by a Qualified 

Outside Party 

Section 1032.210(b)(2) would require 

that an investment adviser provide for 

independent testing of the AML/CFT 

program by the adviser’s personnel or a 

qualified outside party. The purpose of 

this provision is to ensure that an 

investment adviser’s AML/CFT program 

complies with the requirements of 

§ 1032.210 and that the program 

functions as designed. Employees of 

either the investment adviser, its 

affiliates, or unaffiliated service 

providers may conduct the independent 

testing, so long as those same employees 

are not involved in the operation and 

oversight of the program.164 The 

employees would have to be 

knowledgeable regarding AML/CFT 

requirements and qualified to conduct 

independent testing. The frequency of 

the independent testing would depend 

upon the money laundering, terrorist 

financing, and other illicit finance risks 

of the adviser and the adviser’s overall 

risk management strategy. For instance, 

an adviser could conduct independent 

testing over periodic intervals (e.g., 

every 12 to 18 months) or when there 

are significant changes in the adviser’s 

risk profile (with respect to money 

laundering, terrorist financing, or other 

illicit finance risks), systems, 

compliance staff, or processes. More 

frequent independent testing may be 

appropriate when errors or deficiencies 

in some aspect of the AML/CFT 

compliance program have been 

identified or to verify or validate 

mitigating or remedial actions. Any 

recommendations resulting from such 

testing would need to be promptly 

implemented or submitted to senior 

management for consideration. 

(c) Designate a Person or Persons 

Responsible for Implementing and 

Monitoring the Operations and Internal 

Controls of the Program 

Section 1032.210(b)(3) would require 

that an investment adviser designate a 

person or persons to be responsible for 

implementing and monitoring the 

operations and internal controls of the 

AML/CFT program. Under the proposed 

rule, an investment adviser may 

designate a single person or persons 

(including in a committee) to be 

responsible for compliance. The person 

or persons should be knowledgeable 

and competent regarding AML/CFT 

requirements, the adviser’s relevant 

policies, procedures, and controls, as 

well as the adviser’s money laundering, 

terrorist financing, and other illicit 

finance risk. The person or persons 

should have full responsibility and 

authority to develop and implement 

appropriate policies, procedures, and 

internal controls reasonably designed to 

prevent the investment adviser from 

being used for those risks. Whether the 

compliance officer is dedicated full time 

to AML/CFT compliance would depend 

on the size and type of advisory services 

the adviser provides and the customers 

it serves. A person designated as a 

compliance officer should be an officer 


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12128 Federal Register / Vol. 89, No. 32 / Thursday, February 15, 2024 / Proposed Rules 

165 In particular, RIAs who are subject to the 

SEC’s Compliance Rule (17 CFR 275.206(4)–7), 

could designate their chief compliance officer 

under that rule to be responsible for this provision 

of the proposed rule. The proposed rule does not, 

however, require that an investment adviser 

designate the same person. 

166See e.g., DWS Investment Management 

Americas Inc., Investment Company Act Rel. No. 

6431, ¶ 28 (Sept. 25, 2023) (noting DWS’ failure to 

conduct AML training that was specific to the DWS 

Mutual Funds or the risks applicable to mutual 

funds for those employees with mutual fund 

responsibilities). 

167The frequency of these periodic updates and 

refreshers would depend upon the money 

laundering, terrorist financing, and other illicit 

finance risks of the adviser and the adviser’s overall 

risk management strategy. 

168FinCEN, Customer Due Diligence 

Requirements for Financial Institutions, final rule, 

81 FR 29398 (May 11, 2016). 

169 Id. at 29398. 

170See generally 31 U.S.C. 5336(b), (c). 171See 31 U.S.C. 5336(c)(2). 172See 31 CFR 1010.380. 173FinCEN, Beneficial Ownership Information 

Reporting Requirements, final rule, 87 FR 59498 

(Sep. 30, 2022). 174See 31 CFR 1010.955. 

of the investment adviser (or individual 

of similar authority within the 

particular corporate structure of the 

investment adviser) and someone who 

has established channels of 

communication with senior 

management demonstrating sufficient 

independence and access to resources to 

implement a risk-based and reasonably 

designed AML/CFT program.165

(d) Provide Ongoing Training for 

Appropriate Persons 

Section 1032.210(b)(4) would require 

that an investment adviser provide for 

ongoing training of appropriate persons. 

Employee training is an integral part of 

any AML/CFT program. To carry out 

their responsibilities effectively, 

employees of an investment adviser 

(and of any agent or third-party service 

provider that is charged with 

administering any portion of the 

investment adviser’s AML/CFT 

program) would have to be trained in 

AML/CFT requirements relevant to their 

functions and to recognize possible 

signs of money laundering, terrorist 

financing, and other illicit finance 

activity that could arise in the course of 

their duties. Such training may be 

conducted through, among other things, 

outside or in-house seminars, and may 

include computer-based or virtual 

training. The nature, scope, and 

frequency of the investment adviser’s 

training program would be determined 

by the responsibilities of the employees 

and the extent to which their functions 

would bring them in contact with AML/ 

CFT requirements or possible money 

laundering, terrorist financing, or other 

illicit finance activity. Consequently, 

under the proposed rule, the training 

program should provide a general 

awareness of overall AML/CFT 

requirements and money laundering, 

terrorist financing, and other illicit 

finance risks, as well as more jobspecific guidance tailored to particular 

employees’ roles and functions with 

respect to the entities’ particular AML/ 

CFT program.166 For those employees 

whose duties bring them in contact with 

AML/CFT requirements or possible 

money laundering, terrorist financing, 

or other illicit finance risks, the 

requisite training would have to occur 

when the employee assumes those 

duties. Moreover, these employees 

should receive periodic updates and 

refreshers regarding the AML/CFT 

program.167

(e) Ongoing Customer Due Diligence 

(CDD) 

Section 1032.210(b)(5) would require 

that an investment adviser implement 

appropriate risk-based procedures for 

conducting ongoing CDD that includes 

(i) understanding the nature and 

purpose of customer relationships for 

the purpose of developing a customer 

risk profile; and (ii) conducting ongoing 

monitoring to identify and report 

suspicious transactions and, on a risk 

basis, to maintain and update customer 

information. 

These obligations were added to the 

AML/CFT program requirements for 

financial institutions in May 2016, 

when FinCEN issued the CDD Rule.168

The CDD Rule clarified and 

strengthened CDD requirements for 

covered financial institutions (banks, 

mutual funds, brokers or dealers in 

securities, futures commission 

merchants, and introducing brokers in 

commodities) and added a new 

requirement for these covered financial 

institutions to identify and verify the 

identity of the natural persons who own 

or control (known as beneficial owners 

of) legal entity customers when those 

customers open accounts. 

The CDD Rule identifies the four core 

elements of CDD: (1) identifying and 

verifying the identity of customers; (2) 

identifying and verifying the identity of 

the beneficial owners of legal entity 

customers opening accounts; (3) 

understanding the nature and purpose 

of customer relationships; and (4) 

conducting ongoing monitoring.169

FinCEN requests comment on the types 

of information investment advisers 

regularly receive from their customers, 

and how investment advisors would 

exchange information with other 

financial institutions, that could be used 

to understand the nature and purpose of 

the customer relationship and identify 

and monitor suspicious transactions. 

Requiring investment advisers to 

perform effective CDD so that they 

understand who their customers are and 

what type of transactions they conduct 

is a critical aspect of combating all 

forms of illicit finance activity, from 

terrorist financing and sanctions evasion 

to more traditional financial crimes, 

including money laundering, fraud, and 

tax evasion. These measures would also 

enable investment advisers to identify 

and report suspicious transactions by 

filing SARs in the manner that best 

serves the purposes of the BSA. For 

investment advisers covered by the 

proposed rule, FinCEN expects to 

address the first requirement of 

customer identification and verification 

in a future joint rulemaking with the 

SEC, as noted above, while the third and 

fourth elements of the CDD Rule are 

being incorporated into these AML/CFT 

Program requirements through proposed 

§ 1032.210(b)(5). 

FinCEN will take the first steps 

towards incorporating the second 

element by including investment 

advisers in the definition of ‘‘covered 

financial institution’’ under 31 CFR 

1010.605(e)(1), discussed at further 

length below. However, the requirement 

to identify and verify the beneficial 

owners of legal entity customer 

accounts is predicated on the existence 

of a CIP requirement, which, as just 

stated, FinCEN anticipates addressing in 

the future joint rulemaking with the 

SEC. 

The CDD Rule is affected by the 

Corporate Transparency Act (CTA), 

passed as part of the AML Act. The CTA 

requires certain types of domestic and 

foreign entities, called ‘‘reporting 

companies,’’ to submit specified 

beneficial ownership information (BOI) 

to FinCEN.170 In certain circumstances, 

FinCEN is authorized to share this BOI 

with government agencies, financial 

institutions, and financial regulators, 

subject to appropriate protocols.171

FinCEN is issuing three key rules 

pursuant to the CTA. The first rule—the 

BOI reporting rule—requires certain 

corporations, limited liability 

companies, and other entities created in 

or registered to do business in the 

United States to report information 

about their beneficial owners.172 This 

rule was promulgated on September 30, 

2022.173 The second establishes rules 

for who may access BOI for what 

purposes, and what safeguards will be 

required to ensure that the information 

is secured and protected.174 This rule 

was promulgated on December 21, 2023 


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175 .FinCEN, Beneficial Ownership Information 

Access and Safeguards, final rule, 88 FR 88732 

(Dec. 21, 2023). 

176See AML Act section 6403(d)(1) (‘‘Not later 

than 1 year after the effective date of the regulations 

promulgated under section 5336(b)(4) of title 31, 

United States Code, as added by subsection (a) of 

this section, the Secretary of the Treasury shall 

revise the final rule entitled ‘Customer Due 

Diligence Requirements for Financial Institutions’ 

. . . .’’). The effective date of the relevant final rule 

is January 1, 2024. 

177See AML Act section 6403(d)(2) (‘‘[T]he 

Secretary of the Treasury shall rescind paragraphs 

(b) through (j) of section 1010.230 of title 31 . . . 

upon the effective date of the revised rule 

promulgated under this subsection. Nothing in this 

section may be construed to authorize the Secretary 

of the Treasury to repeal the requirement that 

financial institutions identify and verify beneficial 

owners of legal entity customers under section 

1010.230(a).’’). 178See 31 U.S.C. 5318(l). 

179See generally Joint Statement on Bank Secrecy 

Act Due Diligence Requirements for Customers 

Who May Be Considered Politically Exposed 

Persons, (Aug. 21, 2020), https://www.fincen.gov/ 

sites/default/files/shared/PEP%20Interagency%20

Statement_FINAL%20508.pdf. 

180See FinCEN, Customer Due Diligence 

Requirements for Financial Institutions, notice of 

proposed rulemaking, 79 FR 45141, 45161 (Aug. 4, 

2014). 

and goes into effect on February 20, 

2024.175

The CTA also requires FinCEN to 

revise the CDD Rule no later than 

January 1, 2025.176 FinCEN is required 

to rescind the existing specific 

beneficial ownership identification and 

verification requirements of 31 CFR 

1010.230(b)–(j), while retaining the 

general requirement for financial 

institutions to identify and verify the 

beneficial owners of legal entity 

customers under 31 CFR 1010.230(a).177

FinCEN expects to undertake a third 

rulemaking to revise the CDD Rule and 

anticipates that, because of the changes 

required by the AML Act, such a 

rulemaking could have a significant 

impact on financial institutions’ CDD 

obligations. 

In light of these anticipated 

forthcoming changes to the CDD Rule 

and the statutory deadline of January 1, 

2025, to complete them, FinCEN 

assessed that investment advisers 

should not be required to apply the 

current CDD requirements to identify 

and verify the beneficial owners of legal 

entity customer accounts during the 

period between this proposed 

rulemaking and the effective date of the 

revised CDD Rule. Therefore, FinCEN 

has not included requirements to 

identify and verify the beneficial owners 

of legal entity customer accounts in this 

proposed rule. However, FinCEN invites 

comment regarding whether it should 

apply such requirements once a joint 

rulemaking addressing CIP requirements 

is finalized, notwithstanding the 

forthcoming CDD Rule. 

Requirement to Identify and Verify 

Customers. Existing requirements for 

other BSA-defined financial institutions 

require that the relevant financial 

institution’s CIP include risk-based 

procedures to verify the identity of each 

customer, to the extent reasonable and 

practicable. The elements of such 

program must include identifying the 

customer, verifying the customer’s 

identity (through documents or nondocumentary methods, or a combination 

thereof), procedures for circumstances 

where the institution cannot form a 

reasonable belief that it knows the true 

identity of the individual, and 

determining whether the names of 

customers appear on any governmentprovided list of known terrorists or 

terrorist organizations. As noted above, 

Treasury expects to address CIP 

requirements through a future joint 

rulemaking with the SEC, as required by 

section 326 of the USA PATRIOT 

Act.178

Understand the Nature and Purpose 

of Customer Relationships to Develop 

Customer Risk Profiles. As is the case 

for banks, broker-dealers, and mutual 

funds, the term ‘‘customer risk profile’’ 

for covered investment advisers refers to 

information gathered—typically at the 

time of account opening or, in the case 

of a covered investment adviser, at the 

onset of an advisory relationship—about 

a customer to develop the baseline 

against which customer activity is 

assessed for suspicious activity 

reporting. 

Under the proposed rule, investment 

advisers are obligated to report 

suspicious activity by filing SARs on 

transactions that, among other things, 

have no business or apparent lawful 

purpose or are not the sort in which the 

particular customers would normally be 

expected to engage. Fulfilling this 

proposed requirement would necessitate 

that an investment adviser understands 

the nature and purpose of the customer 

relationship, which informs the baseline 

against which aberrant, suspicious 

transactions are identified. In some 

circumstances, an understanding of the 

nature and purpose of a customer 

relationship can also be developed by 

inherent or self-evident information 

about the product or customer type, 

such as the type of customer or the 

service or product offered, or other basic 

information about the customer, and 

such information may be sufficient to 

understand the nature and purpose of 

the relationship. This may include the 

customer’s explanation about its initial 

decision to seek advisory services from 

the adviser and may be reflected in the 

particular type of advisory service the 

customer seeks, as well as information 

already collected by the investment 

adviser, such as net worth, domicile, 

citizenship, or principal occupation or 

business. 

For investment advisers, the risk 

associated with a particular type of 

customer may vary significantly. For 

instance, key risk factors for natural 

person customers may include the 

source of funds, the jurisdiction in 

which they reside, their country(ies) of 

citizenship, and their status as a PEP,179

among other things. For legal entity 

customers, an investment adviser may 

consider the type of entity, the 

jurisdiction in which it is domiciled and 

located, and the statutory and regulatory 

regime of that jurisdiction for company 

formation and other financial 

transparency requirements, if relevant. 

The investment adviser’s historical 

experience with the individual or entity 

and the references of other financial 

institutions may also be relevant factors. 

Regarding the legal entity customers 

of an adviser, some may be financial 

intermediaries or third parties that are 

BSA-defined financial institutions and 

have their own AML/CFT requirements. 

Consequently, the investment adviser 

may not always have a direct 

relationship with the investors in its 

legal entity customers. Those investors 

may be introduced to the adviser by 

other entities who or may or may not 

have their own AML/CFT obligations 

(such as a broker-dealer, other 

investment adviser, or other 

intermediary). For these intermediary 

entities, and even though investment 

advisers would not be required to 

categorically collect beneficial 

ownership information on legal entity 

customers, investment advisers should 

collect sufficient information such that 

they are able to detect and report 

suspicious activity associated with 

intermediated accounts, including 

activity related to underlying clients.180

FinCEN expects that non-intermediary 

legal entity customers that are not BSAdefined financial institutions with their 

own AML/CFT requirements would be 

subject to a different assessment than 

intermediary customers that are BSAdefined financial institutions for 

understanding the nature and purpose 

of the customer relationship. The 

requirement to assess customer risk laid 

out in this proposed rule must be 

understood in this context. 

For understanding the nature and 

purpose of customers who are private 

funds, FinCEN notes that investment 

advisers can (1) create and administer a 

private fund or (2) provide advice to a 


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181FinCEN’s proposed SAR filing obligations for 

investment advisers are discussed below. 

182 31 CFR 1024.210(b)(5)(ii); see also FinCEN, 81 

FR at 29424. 

183 Id. 

184 15 U.S.C. 80b–3(a), (d); see also 76 FR 39646, 

39668–72 (Jul. 6, 2011). 

185 15 U.S.C. 80b–3(a). 

186See, e.g., 31 CFR 1023.100(b). 187 31 U.S.C. 5318(h)(5). 188Not all financial institutions that are required 

to have AML/CFT programs under the BSA have 

Federal functional regulators pursuant to 15 U.S.C. 

6809. 

private fund that is created and 

administered by a third party or an 

intermediary. While the particular role 

played by the investment adviser will 

affect the type of information the 

adviser can collect about the investors 

in such a fund, the adviser should 

collect sufficient information to develop 

a customer baseline for suspicious 

activity reporting regarding the private 

fund. FinCEN invites comments on 

other types of information, other than 

beneficial ownership information, that 

could be collected to understand the 

nature and purpose of a customer 

relationship with a private fund. 

Ongoing Monitoring to Identify 

Suspicious Transactions and Update 

Customer Information. This element of 

CDD would oblige investment advisers 

to perform ongoing monitoring drawing 

on customer information, as well as to 

file SARs in a timely manner in 

accordance with their reporting 

obligations.181 As proposed, the 

obligation to update customer 

information would generally only be 

triggered when the investment adviser 

became aware of information as part of 

its normal monitoring relevant to 

assessing the potential risk posed by a 

customer; it is not intended to impose 

a categorical requirement to update 

customer information on a regularly 

occurring, pre-determined basis. Similar 

to the CDD obligations for mutual 

funds,182 under the proposed 

§ 1032.210(b)(5)(ii), investment advisers 

would be required to implement 

appropriate risk-based procedures to 

conduct ongoing monitoring to identify 

and report suspicious transactions and, 

on a risk basis, to maintain and update 

customer information. 

Ongoing monitoring may be 

accomplished in several ways. Customer 

information may be integrated into the 

financial institution’s transaction 

monitoring system and may be used 

after a potentially suspicious transaction 

has been identified, as one means of 

determining whether the identified 

activity is suspicious. An investment 

adviser may also utilize the information 

sharing provisions under section 314(b) 

of the USA PATRIOT Act to request 

relevant information from other 

financial institutions that may hold 

relevant information, such as the 

qualified custodians of customer funds. 

Regarding legal entity customers, 

FinCEN assesses that in some 

circumstances, on a risk-basis, an 

investment adviser would not need 

information relating to investors in 

those legal entity customers to comply 

with the requirements of the ongoing 

monitoring obligation. However, in 

other circumstances, investment 

advisers may need to request 

information regarding investors in their 

legal entity customers. As FinCEN noted 

in the CDD Rule, the ongoing 

monitoring obligation is intended to 

apply to ‘‘all transactions by, at, or 

through the financial institution,’’ 183

and not just those that are direct 

customers of the financial institution. 

Given that risks posed by each customer 

differ, FinCEN finds that the level of 

risk posed by a customer relationship 

should be a factor influencing the 

decision to request information 

regarding underlying customers, and if 

the legal entity customer does not 

provide such information, how the 

investment adviser should adjust the 

risk profile of that legal entity customer. 

FinCEN is requesting comment on 

several aspects of the proposed 

requirement to apply CDD obligations 

described above. 

Compliance Date. Section 1032.210(c) 

states the effective date by which an 

investment adviser would be required to 

comply with this section. Specifically, 

under this proposed rule, an investment 

adviser would be required to develop 

and implement an AML/CFT program 

that complies with the requirements of 

this section on or before twelve months 

from the effective date of the regulation. 

7. Duty To Establish, Maintain, and 

Enforce an AML/CFT Program by 

Persons in the United States 

FinCEN recognizes that many 

investment advisers are located outside 

the United States or contract certain of 

their operations outside the United 

States. As FinCEN seeks to harmonize 

this AML/CFT framework in a manner 

consistent with the SEC’s existing 

framework for investment advisers, the 

proposed rule follows the scope of the 

SEC’s registration requirements for RIAs 

and Form ADV filing requirements for 

ERAs. Consistent with longstanding SEC 

practice and guidance interpreting 

investment adviser registration 

requirements under the Advisers Act,184

unless subject to an exemption, 

investment advisers located abroad 

generally must register with the SEC if 

they ‘‘make use of the mails or any 

means or instrumentality of interstate 

commerce in connection with [their] 

business as an investment adviser.’’ 185

The BSA permits FinCEN to regulate 

financial institutions located outside the 

United States in such circumstances, 

and FinCEN has previously similarly 

defined certain financial institutions on 

the basis of SEC registration, regardless 

of their physical location.186 In line 

with these requirements and SEC 

guidance, the proposed rule’s 

requirements would therefore apply on 

the same basis to RIAs and ERAs located 

outside the United States. 

FinCEN requests comment on any 

challenges for investment advisers in 

following the scope of the SEC’s 

registration and filing requirements for 

advisers located outside the United 

States and any potential conflicts with 

domestic and foreign law. FinCEN also 

requests comment on whether requiring 

such non-U.S. advisers to file reports of 

suspicious activity with FinCEN is 

consistent with how the applicable SAR 

rules are applied to broker-dealers or 

other BSA-defined financial institutions 

or poses any concerns under foreign 

law, including foreign privacy laws. 

For investment advisers covered by 

the proposed rule, it may be appropriate 

to outsource certain aspects of 

compliance with the proposed rule 

outside the United States. But section 

6101(b)(2)(C) of the AML Act, codified 

at 31 U.S.C. 5318(h)(5), provides that 

the duty to establish, maintain, and 

enforce a financial institution’s AML/ 

CFT program shall remain the 

responsibility of, and be performed by, 

persons in the United States who are 

accessible to, and subject to oversight 

and supervision by, the Secretary of the 

Treasury and the appropriate Federal 

functional regulator.187 Proposed 

§ 1032.210(d) would incorporate this 

statutory requirement with respect to 

the AML/CFT program by restating that 

the duty to establish, maintain, and 

enforce the AML/CFT program must 

remain the responsibility of, and be 

performed by, persons in the United 

States who are accessible to, and subject 

to oversight and supervision by, FinCEN 

and the financial institution’s 

appropriate Federal functional regulator 

(i.e., for covered investment advisers, 

the SEC).188

FinCEN recognizes RIAs and ERAs (as 

well as other financial institutions) may 

currently have AML/CFT staff and 

operations outside of the United States 

to improve cost efficiencies, to enhance 

coordination particularly with respect to 

cross-border operations, or for other 


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189 31 U.S.C. 5318(g)(1). As amended by the USA 

PATRIOT Act, subsection (g)(1) states generally that 

‘‘the Secretary may require any financial institution, 

and any director, officer, employee, or agent of any 

financial institution, to report any suspicious 

transaction relevant to a possible violation of law 

or regulation.’’ 

190See 31 CFR 1020.320, 1021.320, 1022.320, 

1023.320, 1024.320, 1025.320, 1026.320, and 

1029.320. 

191See 31 U.S.C. 5311. See also FinCEN, Year in 

Review for FY 2022 (Apr. 21, 2023) (providing 

additional information on the value of BSA data), 

https://www.fincen.gov/sites/default/files/shared/ 

FinCEN_Infographic_Public_2023_April_21_

FINAL.pdf. 

192See 31 CFR 1020.320(a), 1021.320(a), 

1024.320(a), 1023.320(a), 1026.320(a), and 

1029.320(a) (requiring mutual funds, broker-dealers 

in securities, banks, casinos, futures commission 

merchants and introducing brokers, and loan or 

finance companies to report suspicious transactions 

if they involve in the aggregate at least $5,000). 

reasons. FinCEN requests comment on a 

variety of potential questions or 

challenges that may arise for financial 

institutions as they address this 

requirement, including questions about 

the scope of the requirement and the 

obligations of persons that are covered. 

FinCEN intends to consider whether 

additional interpretive language would 

be appropriate in a final rule. 

F. Reports of Suspicious Transactions 

Under the BSA, FinCEN (through a 

delegation from the Secretary) is 

authorized to require financial 

institutions to report suspicious 

transactions relevant to a possible 

violation of law or regulation.189

FinCEN has issued regulations under 

this authority requiring banks, casinos, 

money services businesses, brokerdealers in securities, mutual funds, 

insurance companies, futures 

commission merchants, loan or finance 

companies, futures commission 

merchants, and introducing brokers in 

commodities to report suspicious 

activity by submitting SARs to 

FinCEN.190 Suspicious activity 

reporting by these and other types of 

financial institutions provide 

information that is highly useful to law 

enforcement and regulatory 

investigations and proceedings, as well 

as in the conduct of intelligence 

activities to protect against international 

terrorism.191

Accordingly, this proposed rule 

would add a new section to FinCEN 

regulations, proposed § 1032.320, that 

would similarly require investment 

advisers to file SARs for any suspicious 

transaction relevant to a possible 

violation of law or regulation. FinCEN 

would expect that requiring investment 

advisers to report suspicious activity 

would similarly provide highly useful 

information for investigations and 

proceedings involving domestic and 

international money laundering, 

terrorist financing, and other illicit 

finance activity, as well as for 

intelligence purposes. Requiring 

investment advisers to report suspicious 

activity would also narrow the 

regulatory gap that may be exploited by 

money launderers, terrorist financiers, 

or other illicit actors seeking access to 

the U.S. financial system through 

financial institutions not required to 

report suspicious transactions. The 

proposed requirement is also generally 

consistent with the existing SAR filing 

requirements for other financial 

institutions under existing regulations. 

As explained above, the proposed rule 

would not require investment advisers 

to file SARs with respect to any mutual 

fund that it advises. 

1. Reports by Investment Advisers of 

Suspicious Transactions 

Proposed § 1032.320(a) sets forth the 

criteria for which an investment adviser 

would be obligated to report suspicious 

transactions that are conducted or 

attempted by, at, or through an 

investment adviser and involve or 

aggregate at least $5,000 in funds or 

other assets. Filing a report of a 

suspicious transaction would not relieve 

an investment adviser from the 

responsibility of complying with any 

other reporting requirement imposed by 

the SEC. 

Proposed § 1032.320(a)(1) contains 

the general statement of the obligation 

to file reports of suspicious transactions. 

The obligation would extend to 

transactions conducted or attempted by, 

at, or through an investment adviser. To 

clarify that the proposed rule imposes a 

reporting requirement that is uniform 

with those for other financial 

institutions, § 1032.320(a)(1) 

incorporates language from the SAR 

rules applicable to other financial 

institutions, such as banks, brokerdealers in securities, mutual funds, 

casinos, and money services businesses. 

Proposed § 1032.320(a)(2) would 

require the reporting of suspicious 

activity that involves or aggregates at 

least $5,000 in funds or other assets. 

The $5,000 threshold in this proposed 

rule is consistent with the SAR filing 

requirements for most other financial 

institutions that are subject to a SAR 

reporting requirement under FinCEN’s 

rules implementing the BSA.192

Furthermore, proposed § 1032.320(a)(1) 

would permit an investment adviser to 

report voluntarily any transaction the 

investment adviser believes is relevant 

to the possible violation of any law or 

regulation but that is not otherwise 

required to be reported by this proposed 

rule. Thus, the rule would encourage 

the voluntary reporting of suspicious 

transactions, such as those below the 

$5,000 threshold of the proposed rule in 

§ 1032.320(a)(2). Such voluntary 

reporting would be subject to the same 

protection from liability as mandatory 

reporting pursuant to 31 U.S.C. 

5318(g)(3). 

Section 1032.320(a)(2)(i) through (iv) 

specify that an investment adviser 

would be required to report a 

transaction if it knows, suspects, or has 

reason to suspect that the transaction (or 

a pattern of transactions of which the 

transaction is a part): (i) involves funds 

derived from illegal activity or is 

intended or conducted to hide or 

disguise funds or assets derived from 

illegal activity as a 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; (ii) is designed, 

whether through structuring or other 

means, to evade the requirements of the 

BSA; (iii) has no business or apparent 

lawful purpose, and the investment 

adviser knows of no reasonable 

explanation for the transaction after 

examining the available facts; or (iv) 

involves the use of the investment 

adviser to facilitate criminal activity. 

The proposed rule would also require, 

including through the obligation to 

conduct ongoing CDD, at proposed 

§ 1032.210(b)(5), that an investment 

adviser evaluate customer activity and 

relationships for money laundering, 

terrorist financing, and other illicit 

finance risks and design a suspicious 

transaction monitoring program that is 

appropriate for the particular 

investment adviser in light of such risks. 

For some investment advisers, such a 

program may include information that 

may be held by a qualified custodian 

receiving and sending customer funds. 

Some of the types of suspicious activity 

an investment adviser may identify and 

report are transactions designed to hide 

the source or destination of funds and 

fraudulent activity. Other suspicious 

activity tied to private funds, 

particularly venture capital funds, could 

include an investor in such a fund 

requesting access to detailed non-public 

technical information about a portfolio 

company that is inconsistent with a 

professed focus on economic return. A 

money launderer also could engage in 

placement and layering by funding a 

managed account or investing in a 

private fund by using multiple wire 

transfers from different accounts 

maintained at different financial 

institutions or requesting that a 

transaction be processed in a manner to 


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193Other BSA-defined financial institutions, such 

as broker-dealers in securities, mutual funds, and 

banks have separate reporting obligations that may 

involve the same suspicious activity. See 31 CFR 

1023.320, 1024.320, 1020.320. 

avoid funds being transmitted through 

certain jurisdictions. 

Suspicious activity could include 

other unusual wire activity that does not 

correlate with a customer’s stated 

investment objectives; transferring 

funds or other assets involving the 

accounts of third parties with no 

plausible relationship to the customer, 

transfers of funds or assets involving 

suspicious counterparties—such as 

those subject to adverse media, 

exhibiting shell company 

characteristics, or located in 

jurisdictions with which the customer 

has no apparent nexus; the customer 

behaving in a manner that suggests that 

the customer is acting as a ‘‘proxy’’ to 

manage the assets of a third party; or an 

unusual withdrawal request by a 

customer with ties to activity or 

individuals subject to U.S sanctions 

following or shortly prior to news of a 

potential sanctions listing. Additionally, 

suspicious activity could include 

potential fraud and manipulation of 

customer funds directed by the 

investment adviser. These typologies 

can consist of insider trading, market 

manipulation, or an unusual wire 

transfer request by an investment 

adviser from a private fund’s account 

held for the fund’s benefit at a qualified 

custodian. 

FinCEN notes, however, that the 

techniques of money laundering, 

terrorist financing, and other illicit 

finance activity are continually 

evolving, and there is no way to provide 

a definitive list of suspicious 

transactions. A determination to file a 

SAR should be based on all the facts 

and circumstances relating to the 

transaction and the customer in 

question. As discussed above, FinCEN 

believes that investment advisers should 

be able to build upon existing policies, 

procedures, and internal controls they 

currently have in place to comply with 

the Federal securities laws to which 

they are subject to report suspicious 

activity. 

Section 1032.320(a)(3) would provide 

that more than one investment adviser 

may have an obligation to report the 

same suspicious transaction and that 

other financial institutions may have 

separate obligations to report suspicious 

activity with respect to the same 

transaction pursuant to other provisions 

in the BSA. However, where more than 

one investment adviser, or another 

financial institution with a separate 

suspicious activity reporting 

obligation,193 is involved in the same 

transaction, only one report jointly filed 

on behalf of all involved financial 

institutions would be required. FinCEN 

recognizes that other financial 

institutions, such as broker-dealers in 

securities, mutual funds, and banks 

have separate reporting obligations that 

may involve the same suspicious 

activity. Furthermore, as discussed 

above, some investment advisers are 

dually registered or affiliated with 

another financial institution. It would 

be permissible for either the investment 

adviser or the other financial institution 

to file a single joint report provided that 

the joint report contained all relevant 

facts and that each institution 

maintained a copy of the report and any 

supporting documentation. The same 

approach would apply when more than 

two financial institutions are involved. 

FinCEN requests comment on whether 

there are existing requirements under 

the Advisers Act or other laws or 

regulations that could assist investment 

advisers in complying with the 

proposed SAR requirements. FinCEN 

also requests comment on what 

guidance would be useful in identifying 

activity that may require the filing of a 

SAR. 

2. Filing and Notification Procedures 

Proposed § 1032.320(b)(1) through (4) 

sets forth the filing and notification 

procedures investment advisers would 

need to follow to make reports of 

suspicious transactions. Within 30 days 

of initial detection by the reporting 

investment adviser of facts that may 

constitute a basis for filing a SAR, the 

adviser would need to report the 

transaction by completing and filing a 

SAR with FinCEN in accordance with 

all form instructions and applicable 

guidance. The investment adviser 

would also need to collect and maintain 

supporting documentation relating to 

each SAR separately and make such 

documentation available to FinCEN, any 

Federal, State, or local law enforcement 

agency; or any Federal regulatory 

authority, such as the SEC, that 

examines the investment adviser for 

compliance with the BSA under the 

proposed rule, upon request of that 

agency or authority. Under the proposed 

rule with respect to SAR filing 

obligations for investment advisers, 

which are in line with existing SAR 

regulations for other BSA-defined 

financial institutions, any supporting 

documents filed with the SAR could 

also be disclosed to those authorities or 

agencies to whom a SAR may be 

disclosed. For situations requiring 

immediate attention, such as suspected 

terrorist financing or ongoing money 

laundering schemes, investment 

advisers would be required under 

§ 1032.320(b)(4) to notify immediately 

by telephone the appropriate law 

enforcement authority in addition to 

filing a timely SAR. 

FinCEN requests comment on how an 

investment adviser would apply the 

proposed SAR filing obligation for 

assets held by a qualified custodian. 

FinCEN also requests comment on 

whether there should be an exception to 

the proposed SAR filing requirement for 

certain violations that are appropriately 

reported to the SEC under the Federal 

securities laws, or for violations with 

respect to a mutual fund advised by the 

investment adviser. Lastly, FinCEN 

requests comment on whether the 

proposed SAR filing requirement would 

produce operational or other challenges. 

3. Retention of Records 

Proposed § 1032.320(c) would provide 

that investment advisers must maintain 

copies of filed SARs and the underlying 

related documentation for a period of 

five years from the date of filing. As 

indicated above, supporting 

documentation would need to be made 

available to FinCEN and the prescribed 

law enforcement and regulatory 

authorities, upon request. 

4. Confidentiality of SARs 

Proposed § 1032.320(d) would 

provide that a SAR and any information 

that would reveal the existence of a SAR 

are confidential and shall not be 

disclosed except as authorized in 

§ 1032.320(d)(1)(ii). Section 

1032.320(d)(1)(i) would generally 

provide that no investment adviser, and 

no current or former director, officer, 

employee, or agent of any investment 

adviser, shall disclose a SAR or any 

information that would reveal the 

existence of a SAR. This provision of 

the proposed rule would further provide 

that any investment adviser and any 

current or former director, officer, 

employee, or agent of any investment 

adviser that is subpoenaed or otherwise 

requested to disclose a SAR or any 

information that would reveal the 

existence of a SAR, would decline to 

produce the SAR or such information 

and would be required to notify FinCEN 

of such a request and any response 

thereto. In addition to reports of 

suspicious activity required by the 

proposed rule, investment advisers 

would be prohibited from disclosing 

voluntary reports of suspicious activity. 

Proposed § 1032.320(d)(1)(ii) would 

provide three rules of construction that 

clarify the scope of the prohibition 


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194To the extent permitted by existing FinCEN 

regulations and guidance, this would include nonU.S. financial institutions. 

195See FinCEN, Sharing Suspicious Activity 

Reports by Securities Broker-Dealers, Mutual Funds, 

Futures Commission Merchants, and Introducing 

Brokers in Commodities with Certain U.S. Affiliates, 

FIN–2010–G005 (Nov. 23, 2010); FinCEN, Sharing 

Suspicious Activity Reports by Depository 

Institutions with Certain U.S. Affiliates, FIN–2010– 

G006 (Nov. 23, 2010). 

196For purposes of this rulemaking, ‘‘non-public 

information’’ refers to information that is exempt 

from disclosure under the Freedom of Information 

Act. 

197 31 CFR 1.11 is the Department of the 

Treasury’s regulation governing demands for 

testimony or the production of records of 

Department employees and former employes in a 

court or other proceeding. 

198To encourage the reporting of possible 

violations of law or regulation and the filing of 

SARs, the BSA contains a safe harbor provision that 

shields financial institutions making such reports 

from civil liability. In 2001, the USA PATRIOT Act 

clarified that the safe harbor also covers voluntary 

disclosure of possible violations of law and 

regulations to a government agency and expanded 

the scope of the safe harbor to cover any civil 

liability which may exist under any contract or 

other legally enforceable agreement (including any 

arbitration agreement). See USA PATRIOT Act, 

section 351(a). Public Law 107–56, Title III, 351, 

115 Stat. 272, 321(2001); 31 U.S.C. 5318(g)(3). 

against the disclosure of a SAR by an 

investment adviser and closely parallel 

the rules of construction in the 

suspicious activity reporting rules for 

other financial institutions. As 

discussed above, the proposed rules of 

construction would primarily describe 

situations that are not covered by the 

prohibition against the disclosure of a 

SAR or information that would reveal 

the existence of a SAR contained in 

§ 1032.320(d)(1). The rules of 

construction proposed in this 

rulemaking would remain qualified by, 

and subordinate to, the statutory 

mandate that revealing to one or more 

subjects of a SAR of the SAR’s existence 

would remain a crime. 

The first rule of construction, in 

§ 1032.320(d)(1)(ii)(A)(1), would 

authorize an investment adviser, or any 

director, officer, employee or agent of an 

investment adviser, to disclose a SAR, 

or any information that would reveal the 

existence of a SAR, to various 

authorities—FinCEN; any Federal, State 

or local law enforcement agency; or a 

Federal regulatory authority that 

examines the investment adviser for 

compliance with the BSA—provided 

that no person involved in the reported 

transaction is notified that the 

transaction has been reported. As 

discussed above, FinCEN is proposing 

to delegate its examination authority for 

compliance by investment advisers with 

FinCEN’s rules implementing the BSA 

to the SEC. 

The second rule of construction, in 

§ 1032.320(d)(1)(ii)(A)(2), would 

provide two instances where disclosures 

of underlying facts, transactions, and 

documents upon which a SAR was 

based would be permissible: in 

connection with (i) preparation of a 

joint SAR or (ii) certain employment 

references or termination notices. An 

investment adviser, or any current or 

former director, officer, employee, or 

agent of an investment adviser, 

therefore, would not be prohibited from 

disclosing the underlying facts, 

transactions, and documents upon 

which a SAR is based, including but not 

limited to, disclosures of such 

information to another financial 

institution or any director, officer, 

employee, or agent of a financial 

institution, for the preparation of a joint 

SAR, provided that no person involved 

in the reported transaction is notified 

that the transaction has been 

reported.194 Similarly, an investment 

adviser, or any current or former 

director, officer, employee, or agent of 

an investment adviser would not be 

prohibited from disclosing the 

underlying facts, transactions, and 

documents upon which a SAR is based 

connection with certain employment 

references or termination notices, to the 

full extent authorized in 31 U.S.C. 

5318(g)(2)(B). 

The third rule of construction, in 

§ 1032.320(d)(1)(ii)(B), would authorize 

sharing of a SAR within an investment 

adviser’s corporate organizational 

structure for purposes consistent with 

the BSA as determined by regulation or 

in guidance. 

FinCEN recognizes that the sharing of 

SARs and other relevant information 

indicative of illicit activity can 

strengthen the ability of financial 

institutions to prevent illicit finance 

activity from entering the U.S. financial 

system. FinCEN will consider 

permitting investment advisers to share 

SARs with certain U.S. affiliates, 

provided the affiliate is subject to a 

regulation providing for the 

confidentiality of SARs issued by 

FinCEN or by the affiliate’s Federal 

functional regulator, and consistent 

with SAR sharing guidance finalized in 

2010 and applicable to other BSAdefined financial institutions.195

FinCEN requests comment on this 

specific issue. FinCEN further requests 

comment on whether there are other 

entities or activities where the sharing 

of SARs would further the purposes of 

the BSA, and if so, how such sharing 

would be consistent with the BSA and 

how investment advisers would be able 

to maintain the confidentiality of shared 

SARs. 

Section 1032.320(d)(2) would also 

incorporate the statutory prohibition 

against disclosure of SAR information 

by government authorities that have 

access to SARs other than in fulfillment 

of their official duties consistent with 

the BSA. The paragraph would clarify 

that official duties do not include the 

disclosure of SAR information in 

response to a request by a nongovernmental entity for non-public 

information 196 or for use in a private 

legal proceeding, including a request 

under 31 CFR 1.11.197 Accordingly, the 

provision would not permit such 

disclosure by government users in 

response to these requests or uses. 

5. Limitation of Liability 

Proposed § 1032.320(e) would provide 

protection from liability, also known as 

safe harbor, for making either required 

or voluntary reports of suspicious 

transactions, or for failures to provide 

notice of such disclosure to any person 

identified in the disclosure to the full 

extent provided by 31 U.S.C. 

5318(g)(3).198 This protection would 

extend to an investment adviser and any 

current or former director, officer, 

employee, or agent of an investment 

adviser. 

6. Compliance 

Proposed § 1032.320(f) would note 

that FinCEN or its delegates would 

examine compliance by investment 

advisers with the obligation to report 

suspicious transactions and provide that 

failure to comply with the proposed rule 

may constitute a violation of the BSA 

and FinCEN’s regulations. As discussed 

above, pursuant to 31 CFR 1010.810(a), 

FinCEN has overall authority for 

enforcement and compliance with its 

regulations, including coordination and 

direction of procedures and activities of 

all other agencies exercising delegated 

authority. Further, pursuant to 

§ 1010.810(d), FinCEN has the authority 

to impose civil penalties for violations 

of the BSA and its regulations. 

7. Consultation 

FinCEN will consult on the SAR filing 

requirements contained in the proposed 

rule with the Attorney General and 

appropriate representatives of State 

bank supervisors, State credit union 

supervisors, and the Federal functional 

regulator as required by section 6202 of 

the AML Act of 2020 (codified at 31 

U.S.C. 5318(g)(5)). Pursuant to this 

section, in imposing any requirement to 

report any suspicious transaction under 

this subsection, the Secretary of the 

Treasury, in consultation with the 

Attorney General, appropriate 


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199 31 U.S.C. 5318(g)(5). 

200See FinCEN, Anti-Money Laundering and 

Countering the Financing of Terrorism National 

Priorities (FinCEN, AML/CFT Priorities), (Jun. 30, 

2021), https://www.fincen.gov/sites/default/files/ 

shared/AML_CFTPriorities(June30%2C2021).pdf. 

201See 31 CFR 1010.520, 1010.540. 

202See 31 U.S.C. 5311 (statutory notes). 

203 Id. 

204 31 CFR 1010.520(b)(3)(i). 

205 31 CFR 1010.520(b)(3)(ii). 

206FinCEN, FinCEN’s 314(a) Fact Sheet (Sept. 5, 

2023), https://www.fincen.gov/sites/default/files/ 

shared/314afactsheet.pdf. Covered financial 

institutions are instructed not to reply to the 314(a) 

request if a search does not uncover any matching 

of accounts or transactions. 

207FinCEN, FinCEN’s 314(b) Fact Sheet (Dec. 

2020), available at https://www.fincen.gov/sites/ 

default/files/shared/314bfactsheet.pdf (noting, in 

part, that participation in information sharing 

pursuant to section 314(b) is voluntary, and FinCEN 

strongly encourages financial institutions to 

participate). 

representatives of State bank 

supervisors, State credit union 

supervisors, and the Federal functional 

regulators, shall consider items that 

include— 

• the national priorities established 

by the Secretary; 

• the purposes described in section 

5311 of the BSA; and 

• the means by or form in which the 

Secretary shall receive such reporting, 

including the burdens imposed by such 

means or form of reporting on persons 

required to provide such reporting, the 

efficiency of the means or form, and the 

benefits derived by the means or form 

of reporting by Federal law enforcement 

agencies and the intelligence 

community in countering financial 

crime, including money laundering and 

the financing of terrorism.199

These items have been considered by 

the Treasury as described elsewhere in 

this proposed rule. The AML/CFT 

National Priorities include combatting 

corruption, fraud, and transnational 

crime.200 For example, as discussed in 

section II.C above, the absence of AML/ 

CFT requirements for investment 

advisers, including SAR filing 

requirements, enables criminals to gain 

access to the U.S. financial system for 

purposes of fraud, laundering the 

proceeds of corruption, and other forms 

of transnational crime. For these 

reasons, and the risk of foreign 

adversaries using investment advisers to 

gain access to U.S. technology as 

discussed in section II.C.2, requiring 

investment advisers to file SARs will be 

highly useful for criminal and 

regulatory investigations and 

intelligence or counterintelligence 

activities to combat terrorism, and are 

otherwise consistent with the purposes 

set forth in section 5311 of the BSA. 

This section, particularly subsection 

F.2, details the typologies that should be 

reported and how advisers may do so in 

a risk-based manner most beneficial to 

Federal law enforcement and 

intelligence agencies. 

Through this rulemaking process, 

Treasury will consult with the relevant 

State and Federal regulators. This 

proposed rule has already been sent to 

the Department of Justice and to the SEC 

as the Federal functional regulator for 

investment advisers for interagency 

consultation, and their input on this 

issue has been invited. Federal banking 

regulators have also been invited to 

comment on all aspects of this proposed 

rule. Treasury plans to reach out to the 

Conference of State Banking Supervisors 

as a representative of State banking and 

credit union supervisors for 

consultation on this issue and such 

supervisors are invited to comment on 

this proposed rule through the public 

comment process as well. 

G. Special Information-Sharing 

Procedures To Deter Money Laundering 

and Terrorist Activity 

Proposed §§ 1032.500, 1032.520, and 

1032.540 would expressly subject 

investment advisers to FinCEN’s rules 

implementing the special informationsharing procedures to detect money 

laundering or terrorist activity of 

sections 314(a) and 314(b) of the USA 

PATRIOT Act.201 Section 314(a) 

provides that the Secretary of the 

Treasury adopt regulations to encourage 

the further cooperation and sharing of 

information regarding credible evidence 

of terrorist acts or money laundering 

activities among financial institutions, 

their regulatory authorities, and law 

enforcement authorities.202 Section 

314(b) provides financial institutions 

with the ability to share information 

regarding parties suspected of possible 

terrorist or money laundering activities 

with another financial institution upon 

notice to the Treasury under a safe 

harbor that offers protections from 

liability.203

FinCEN’s regulations at 31 CFR part 

1010, subpart E—in particular, 31 CFR 

1010.520 and 1010.540—implement 

sections 314(a) and 314(b) of the USA 

PATRIOT Act, respectively. Section 

1010.520, regarding information sharing 

with government agencies, applies to 

financial institutions generally. Section 

1010.540, regarding voluntary 

information sharing between financial 

institutions, applies to financial 

institutions that are required to have 

AML/CFT programs—i.e., financial 

institutions that have not been 

exempted from that requirement—with 

certain exclusions. In contrast to the 

approach described above, FinCEN 

proposes to require investment advisers 

to apply these requirements to any 

mutual funds that they advise. 

This proposed rule, by designating 

investment advisers as financial 

institutions under the BSA, would 

apply 1010.520 and 1010.540 to 

investment advisers. Proposed 

§§ 1032.500, 1032.520, and 1032.540, 

moreover, would explicitly subject 

investment advisers to the provisions of 

§§ 1010.520 and 1010.540. Section 

1032.500 would state generally that 

investment advisers are subject to the 

special information sharing procedures 

of subpart E. In turn, proposed 1032.520 

would cross-reference 31 CFR 1010.520, 

and proposed § 1032.540 would crossreference 31 CFR 1010.540, expressly 

applying these provisions to investment 

advisers. The proposed provisions, 

therefore, would make clear that 

FinCEN’s rules implementing section 

314 would apply to investment advisers. 

These provisions generally would 

require an investment adviser, upon 

request from FinCEN, to expeditiously 

search its records for specified 

information to determine whether the 

investment adviser maintains or has 

maintained any account for, or has 

engaged in any transaction with, an 

individual, entity, or organization 

named in FinCEN’s request.204 An 

investment adviser would then be 

required to report any such identified 

information to FinCEN.205

FinCEN is proposing to apply these 

information sharing requirements so 

that investment advisers would be better 

able to identify and report money 

laundering, terrorist financing, and 

other illicit finance activity, and the 

U.S. Government would have a more 

detailed understanding of illicit finance 

activity and risk among investment 

advisers. Under the proposed rule, 

which adopts by reference 31 CFR. 

1010.540, law enforcement would be 

able to request from investment 

advisers, where there is reasonable 

suspicion and credible evidence, 

potential lead information that might 

otherwise never be uncovered.206

Further, investment advisers would be 

able to participate in voluntary section 

314(b) information sharing 

arrangements, through which they 

would be able to gather additional 

information from other financial 

institutions, which would enable 

broader understanding of customer risk 

and filing of/or file more comprehensive 

SARs, for example.207

FinCEN seeks comment on whether 

the proposed rule should apply the 

special information sharing procedures 


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208See 31 CFR 1010.610 and 1010.620. FinCEN 

notes that it does not propose in this rulemaking to 

amend the definition of ‘‘private banking account’’ 

at 31 CFR 1010.605(m). 

209Public Law 107–56, section 312 (Oct. 26, 

2011), codified as 31 U.S.C. 5318(i). 

210 31 CFR 1010.610 through 1010.620. 

211 31 CFR 1010.610(b). 

212 31 CFR 1010.620(c). 

213 31 CFR 1024.610 and 1024.630. 

214 31 U.S.C. 5318A. 

215Section 9714 (as amended) can be found in a 

note to 31 U.S.C. 5318A. 

under 31 CFR 1010.520 and 1010.540 to 

investment advisers. FinCEN also seeks 

comment on the circumstances under 

which investment advisers would enter 

into voluntary 314(b) information 

sharing arrangements. 

H. Special Standards of Diligence; 

Prohibitions; and Special Measures for 

Investment Advisers 

FinCEN’s regulations contain several 

standards, prohibitions, and other 

requirements for financial institutions 

under certain circumstances in 31 CFR 

part 1010, subpart F (31 CFR 1010.600 

through 1010.670). FinCEN is proposing 

to apply several of these provisions to 

investment advisers. FinCEN would 

reflect this in a general cross-reference, 

proposed § 1032.600, that would state 

that investment advisers are subject to 

those ‘‘special standards of diligence; 

prohibitions; and special measures’’, 

and explicitly cross-reference 31 CFR 

part 1010, subpart F. FinCEN does not 

propose to permit investment advisers 

to exempt from any mutual funds that 

they advise these requirements under 

Subpart F. FinCEN is also proposing 

several other regulatory changes to 

apply these provisions to investment 

advisers as discussed further below. 

1. Definition of ‘‘Correspondent 

Account’’ and ‘‘Covered Financial 

Institution’’ 

FinCEN is proposing to amend two 

definitions in 31 CFR 1010.605 as these 

definitions would apply to investment 

advisers. First, it would amend the 

definition of ‘‘account’’ in § 1010.605(c), 

as applied to the meaning of 

‘‘correspondent account,’’ to include, as 

applied to investment advisers, ‘‘any 

contractual or other business 

relationship established between a 

person and an investment adviser to 

provide advisory services.’’ FinCEN 

seeks public comment on this 

definition—and more broadly how the 

concept of a ‘‘correspondent account’’ 

may apply to investment advisers, to the 

extent investment advisers establish 

accounts to handle financial 

transactions, such as treasury 

investment clearing, for foreign 

financial institutions. 

Second, FinCEN is also proposing to 

revise 31 CFR 1010.605(e)(1) (as well as 

add corresponding cross-references as 

proposed §§ 1032.610 and 1032.620) to 

include investment advisers in the 

definition of ‘‘covered financial 

institution.’’ This would have several 

effects. First, it would expressly subject 

investment advisers to FinCEN’s rules 

implementing special standards of due 

diligence for correspondent accounts 

established or maintained for foreign 

financial institutions and private 

banking accounts established or 

maintained for non-U.S. persons.208 As 

described previously and discussed at 

greater length below, defining 

investment advisers as ‘‘covered 

financial institutions’’ would ordinarily 

place investment advisers within the 

scope of requirements for the collection 

and verification of beneficial ownership 

information of legal entity customers as 

laid out in § 1010.230. However, as 

described above, FinCEN expects that 

the requirement to collect and verify 

beneficial ownership information for 

legal entity customers to be addressed in 

a future rulemaking. Accordingly, the 

proposed revised § 1010.605(e)(1) would 

expressly provide that an investment 

adviser would not be considered a 

‘‘covered financial institution’’ for the 

purposes of § 1010.230. 

2. Special Standards for Diligence 

Proposed §§ 1032.610 and 1032.620 

adopt by reference §§ 1010.610 and 

1010.620, which rely on definitions in 

1010.605 in implementing section 312 

of the USA PATRIOT Act. Section 312 

of the USA PATRIOT Act establishes 

special due diligence requirements for 

private banking and correspondent bank 

accounts involving foreign persons.209

Because the due diligence requirements 

of §§ 1010.610 and 1010.620 apply to ‘‘a 

covered financial institution’’ as defined 

by § 1010.605(e)(1), adding investment 

advisers to this definition, as discussed, 

would subject investment advisers to 

the requirements of §§ 1010.610 and 

1010.620. The proposed rule would add 

cross references (proposed §§ 1032.610 

and 1032.620) in the proposed 

investment adviser regulatory part of the 

FinCEN regulations, part 1032, directing 

investment advisers to the due diligence 

requirements of §§ 1010.610 and 

1010.620. 

Section 312’s implementing 

regulations require that covered 

financial institutions maintain due 

diligence programs for correspondent 

accounts for foreign financial 

institutions and for private banking 

accounts that include policies, 

procedures, and controls that are 

reasonably designed to detect and report 

any known or suspected money 

laundering or suspicious activity 

conducted through or involving any 

such correspondent or private banking 

accounts.210 These provisions also set 

certain minimum standards for such 

due diligence programs, as well as 

procedures for enhanced due diligence 

for correspondent accounts for foreign 

banks 211 and private banking accounts 

for senior foreign political figures.212

Applying these special standards of 

due diligence to investment advisers 

would assist RIAs and ERAs in 

understanding risk and identifying 

illicit activity in certain intermediated 

advisory relationships. Specifically, 

these standards would address 

relationships with high-net worth nonU.S. customers and foreign financial 

institutions that may be acting on behalf 

of higher-risk non-U.S. customers, when 

those relationships involve 

correspondent accounts for foreign 

financial institutions or private banking 

accounts. 

FinCEN’s proposed rule would 

subject investment advisers to special 

due diligence standards consistent with 

the special due diligence standards 

applied to similarly situated financial 

institutions under the BSA. For 

instance, mutual funds, which are 

advised by RIAs, are already subject to 

the section 312 requirements.213

FinCEN requests comment on whether it 

is appropriate to apply the special due 

diligence requirements for 

correspondent and private banking 

accounts as proposed at §§ 1032.610 and 

1032.620 to investment advisers, and if 

doing so would further the purposes of 

the BSA and protect the U.S. financial 

system from national security threats. 

3. Special Measures 

Section 311 of the USA PATRIOT Act 

requires U.S. financial institutions to 

implement certain ‘‘special measures’’ if 

the Secretary finds that reasonable 

grounds exist to conclude that a foreign 

jurisdiction, institution, class of 

transaction, or type of account is a 

‘‘primary money laundering 

concern.’’ 214 Section 9714(a) of the 

Combatting Russian Money Laundering 

Act allows for similar special measures 

in the context of Russian illicit 

finance.215 FinCEN is proposing that 

investment advisers be required to 

comply with special measures issued 

pursuant to sections 311 and 9714(a) in 

order to maintain the options available 

under these sections to protect the U.S. 

financial system from certain illicit 

finance threats and to require 

investment advisers to meet obligations 


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216See, e.g., 31 CFR 1010.658(a)(3), 

1010.659(a)(5), 1010.660(a)(3), and 1010.661(a)(3). 

consistent with obligations imposed on 

other BSA-defined financial institutions 

under sections 311 and 9714 special 

measures. 

As noted above, proposed § 1032.600 

would state generally that investment 

advisers are subject to FinCEN special 

measures as set forth in subpart F of part 

1010 and would cross-reference 31 CFR 

part 1010, subpart F, which includes 

section 311 special measures. FinCEN is 

not proposing any other regulatory 

changes specifically to apply sections 

311 and 9714 special measures to 

investment advisers. Some special 

measures, however, base their scope in 

part on 31 CFR 1010.605’s definition of 

‘‘covered financial institution.’’ 216

Thus, by amending that definition to 

include investment advisers, as 

discussed, the proposed rule would be 

expressly placing investment advisers 

among the financial institutions subject 

to these special measures. FinCEN 

requests comment on whether 

investment advisers enter into advisory 

relationships that are similar to a 

‘‘private banking account’’ relationship 

as defined at 31 CFR 1010.605. 

V. Request for Comment 

FinCEN seeks comment on the rule 

proposed here and whether the 

proposed rule is appropriate in light of 

the nature of investment adviser 

activities and money laundering, 

terrorism financing, and other illicit 

finance risks associated with investment 

advisers. In particular, FinCEN seeks 

comment on the following aspects of the 

proposed rule. For all responses, 

commenters are encouraged to provide 

the basis for any conclusions drawn in 

their comments. 

Proposed Definition of Investment 

Adviser 

FinCEN requests comment on all 

aspects of the definition of ‘‘investment 

adviser’’ as proposed in 

§ 1010.100(nnn). In particular: 

• Is the definition of ‘‘investment 

adviser’’ sufficiently clear? 

• Are there classes of investment 

advisers included in the proposed 

definition of investment adviser that 

present a very low risk for money 

laundering, terrorist financing, or other 

illicit finance activity such that they 

should appropriately be excluded from 

the definition? If so, why would it be 

appropriate to exclude such advisers 

from the definition as opposed to 

retaining those advisers in the definition 

and requiring them to adopt an AML/ 

CFT program that is appropriate to their 

level of risk? 

• To what extent are State-registered 

and foreign investment advisers that do 

not meet the definition of ‘‘investment 

adviser’’ proposed here at risk for being 

used for money laundering, terrorist 

financing, or other illicit finance 

activity? Should these types of advisers 

be included in the proposed definition? 

• Are there other types of investment 

advisers that may not meet the 

definition in the proposed rule that are 

at risk for abuse by money launderers, 

terrorist financers, or other illicit actors 

that should also be subject to the 

proposed rule for RIAs and ERAs and 

the corresponding supervision and 

examination? Are there any entities 

excluded from the definition of 

‘‘investment adviser’’ under section 

202(a)(11) of the Advisers Act, such as 

family offices, that are at risk for such 

abuses? 

• Should ERAs be excluded from the 

proposed definition of investment 

adviser? How could FinCEN otherwise 

address the money laundering, terrorist 

financing, and other illicit finance risk 

associated with ERAs? Are there such 

risks that are specific to ERAs? 

• With regard to ERAs, are there 

differences in the risks associated with 

an adviser that qualifies for and elects 

to use the exemption under section 

203(l) of the Advisers Act as compared 

to those associated with an adviser that 

qualifies for and elects to use the 

exemption under section 203(m) of the 

Advisers Act that would warrant 

different treatment under the BSA and 

the rule proposed here? If so, please 

offer examples of how each group may 

be treated under the proposed rule 

noting how their treatment differs in 

line with their differing risks. 

• Are there certain services or 

activities provided by investment 

advisers that present a very low risk for 

money laundering, terrorist financing, 

or other illicit finance activity such that 

they could appropriately be excluded, 

or cases where applying AML/CFT 

requirements would result in 

information of limited value to law 

enforcement and regulators? Please 

provide specific examples if so. 

• Should the definition of investment 

adviser apply to non-U.S. advisers 

registered or required to register with 

the SEC (for RIAs) or that report to the 

SEC on Form ADV (for ERAs)? What 

would be the logistical challenges of 

this approach? 

• What are the benefits to and 

challenges of requiring such non-U.S. 

advisers to file reports of suspicious 

activity with FinCEN on activities 

involving U.S. customers or the U.S. 

financial system? 

A. Proposed Requirement To Require 

Advisers To File CTRs and Comply With 

the Recordkeeping and Travel Rules 

FinCEN requests comment on the 

application of the Recordkeeping and 

Travel Rules and CTR filing 

requirements. In particular: 

• Are there circumstances where 

investment advisers should be exempt 

from complying with the requirements 

of the Recordkeeping and Travel Rules? 

• Do other BSA-defined financial 

institutions, such as qualified 

custodians, already collect and record 

this information for customers of 

investment advisers that they facilitate 

transactions for? 

• To what extent do investment 

advisers already regularly and 

consistently collect the information 

required under the Recordkeeping and 

Travel Rules? If you or your firm would 

be subject to these requirements, to 

what extent would it represent an 

additional regulatory cost? 

• To what extent do investment 

advisers work with qualified custodians 

to maintain separate accounts, 

subaccounts, or similar products and 

services to manage a customer’s funds, 

including for purposes of effecting wire 

transfers? 

B. AML/CFT Program Requirement 

FinCEN requests comment on all 

aspects of the proposed AML/CFT 

program requirement for investment 

advisers. In particular: 

• Which existing requirements under 

the Advisers Act or the regulations 

adopted thereunder, or other laws or 

regulations, could assist investment 

advisers in complying with the 

proposed AML/CFT Program 

requirements? Are any such existing 

requirements duplicative with any 

proposed requirements? 

• Which existing measures, such as 

any existing policies and procedures, to 

implement OFAC sanctions may 

investment advisers be able to rely on to 

comply with certain requirements in the 

proposed rule? 

• Would an exemption from the 

requirements of the proposed rule with 

respect to customers that are mutual 

funds be consistent with the purposes of 

the BSA and avoiding duplication of 

existing AML/CFT requirements for 

mutual funds? 

• Instead of exempting investment 

advisers from the requirements of the 

proposed rule with respect to customers 

that are mutual funds, should the 

proposed rule permit investment 

advisers and their mutual fund 


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customer to delegate their AML 

obligations amongst each other? 

• Should investment advisers to 

mutual funds still be required to 

monitor for and file SARs on the mutual 

fund investors? Why or why not? 

• Should the exemption for mutual 

funds be dependent on the nature of the 

relationship between the investment 

adviser and its mutual fund customer 

and the ability of the investment adviser 

to meet AML/CFT obligations? 

• Other than mutual funds, are there 

other categories of entities that could be, 

on a risk-basis, reasonably exempted 

from an investment adviser’s AML/CFT 

program? Why or why not? 

• Should we require an investment 

adviser to include in its AML/CFT 

program all of the advisory services it 

provides, including whether acting as 

the primary adviser or a subadviser? 

• Are there certain subadvisory 

activities or circumstances that should 

be included or excluded from coverage 

of this proposed rule, such as the 

specific services provided as a 

subadviser or the particular type of 

investment adviser serving as the 

primary adviser? 

• To what extent would a 

subadviser’s AML/CFT program overlap 

with the primary adviser’s AML/CFT 

program and how could possible 

duplication of effort be mitigated? For 

example, should the proposed rule 

expressly permit a subadviser to 

consider the existence and operation of 

the primary adviser’s program in 

satisfying the subadviser’s own 

obligations? 

• Is there an increased risk for a 

subadviser to be used for money 

laundering, terrorist financing, or other 

illicit finance activity when providing 

advisory services to a customer that has 

a primary adviser that is not an 

investment adviser (as defined in the 

proposed rule)? 

• Are there other similar 

arrangements where an investment 

adviser may be sub-contracted to 

provide services to another investment 

adviser that should or should not be in 

scope of an investment adviser’s AML/ 

CFT program? 

• Do investment advisers that are 

affiliated with a dually registered bank 

or broker-dealer currently apply AML/ 

CFT program requirements and other 

AML/CFT measures applicable to the 

bank or broker-dealer in any of their 

advisory activities? If so, which 

activities and which requirements are 

applied? 

• How do investment advisers that 

are subsidiaries of banks currently apply 

AML/CFT measures that are applicable 

to their parent banks? 

• How do investment advisers that 

are affiliated with a bank or brokerdealer apply enterprise-wide AML/CFT 

requirements? Are there certain 

enterprise-wide AML/CFT requirements 

that are presently tailored to address the 

risks arising in advisory activities? 

• What information do fund 

administrators currently collect that 

would support implementation of the 

proposed rule? 

• Is it appropriate to allow an adviser 

to delegate some elements of its AML/ 

CFT program to an entity with which 

the customer, and not the adviser, has 

the contractual relationship? This 

would include entities providing 

services to funds advised by the RIA or 

ERA. 

• Are there challenges for delegating 

certain requirements of the proposed 

rule to fund administrators? Are there 

differences in those challenges for fund 

administrators whose operations are 

primarily conducted inside the United 

States compared to those whose 

operations are primarily conducted 

outside of the United States? 

• Can fund administrators whose 

operations are primarily conducted 

outside of the United States collect and 

provide information on offshore pooled 

investment vehicles when that 

information is requested by a U.S. 

investment adviser? What types of 

challenges might U.S. investment 

advisers face in receiving such 

information? 

• If some or all requirements of the 

proposed rule are delegated to fund 

administrators whose operations are 

primarily conducted outside of the 

United States, will the investment 

adviser be able to effectively monitor 

implementation of those requirements? 

C. Proposed Minimum Requirements of 

the AML/CFT Program 

FinCEN seeks comment on the 

minimum requirements for an 

investment adviser’s AML/CFT program 

as proposed in § 1032.210(b). In 

particular: 

• Should closed-end registered funds, 

wrap fee programs, or other types of 

accounts advised by investment 

advisers be, on a risk-basis, reasonably 

exempted from an investment adviser’s 

AML/CFT program? 

• How can the requirements of the 

proposed rule be applied to advisers 

participating in a wrap fee program, to 

include when an adviser acting as 

portfolio manager is either affiliated or 

not affiliated with the sponsoring entity 

of the program? 

• The requirements of 31 U.S.C. 

5318(h)(5) state that the ‘‘duty to 

establish, maintain and enforce’’ the 

financial institution’s AML/CFT 

program ‘‘shall remain the 

responsibility of, and be performed by, 

persons in the United States who are 

accessible to, and subject to oversight 

and supervision by, the Secretary of the 

Treasury and the appropriate Federal 

functional regulator.’’ FinCEN invites 

comments on how this would impact 

RIAs and ERAs, including the extent to 

which compliance with this 

requirement would require changes to 

existing AML/CFT programs and 

estimated associated costs with any 

such changes. 

1. Applicability to Private Funds 

• What information is currently 

available to advisers to private funds 

regarding the investors in private funds 

that could help advisers comply with 

the proposed AML/CFT Program 

requirement? 

• Are there other factors related to the 

activities, investors, or structure of a 

private fund that could be higher- or 

lower-risk? 

• Should a subadviser to a private 

fund or other unregistered pooled 

investment vehicle with a primary 

adviser that is not an investment adviser 

(as defined in the proposed rule) be 

required to establish the same policies, 

procedures, and internal controls as 

when the primary adviser is an 

investment adviser (as defined in the 

proposed rule)? 

• If an investor in the private fund or 

other unregistered pooled investment 

vehicle is itself a pooled investment 

vehicle, should a subadviser to the 

private fund be required to identify risks 

and incorporate policies, procedures, 

and internal controls within its AML/ 

CFT program to mitigate the risks of the 

investing pooled investment vehicle’s 

investors, sponsoring entity, and/or 

intermediaries when there is an 

increased risk of money laundering, 

terrorist financing, or other illicit 

activity? How might a subadviser 

identify when increased risks are 

present? 

• How should the proposed rule 

apply to advisers who manage private 

funds that receive investments from infunds? To what extent should advisers 

be able to rely on the AML/CFT Program 

of advisers to other funds? 

• How should the proposed rule 

apply to an adviser to a private fund 

who has funds-of-funds who are 

investors? To what extent should they 

be able to rely on the AML/CFT Program 

of advisers who advise funds-of-funds? 


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217See infra. 

218All aggregate figures are approximate and not 

precise estimates unless otherwise specified. 

2. Risk-Based Procedures for Ongoing 

Customer Due Diligence 

• What customer diligence 

procedures do RIAs already have in 

place to meet the representations in the 

SIFMA No-Action Letter? Do ERAs have 

similar procedures in place? 

• What other types of information do 

investment advisers regularly receive 

from their customers that could be used 

to understand the nature and purpose of 

a customer relationship? 

• How would investment advisers 

exchange information with other 

financial institutions involved in 

facilitating customer transactions, such 

as qualified custodians, to understand 

the nature and purpose of a customer 

relationship and conduct ongoing 

monitoring to identify suspicious 

transactions? 

• How may investment advisers 

apply the requirement for ongoing 

monitoring to identify suspicious 

transactions differently than other 

financial institutions, such as banks and 

broker-dealers? 

3. Identification and Verification of 

Beneficial Owners of Legal Entity 

Customers 

• Do you agree with the proposal to 

wait to apply the requirement to collect 

and verify the beneficial ownership 

information of legal entity accounts at 

§ 1010.230 to investment advisers until 

at or after the CTA-mandated revisions 

to the CDD Rule, or should Treasury 

apply the existing requirement as soon 

as a CIP requirement for investment 

advisers is effective? 

• What types of information regarding 

private funds, other than beneficial 

ownership information, could an 

investment adviser collect to 

understand the nature and purpose of a 

customer relationship with a private 

fund and conduct ongoing monitoring to 

identify suspicious transactions 

involving the private fund? 

D. Proposed Suspicious Activity 

Reporting Rule 

FinCEN seeks comment on all aspects 

of the suspicious activity reporting rule 

as proposed in § 1032.320. In particular: 

• Which existing requirements under 

the Advisers Act or other laws or 

regulations could assist investment 

advisers in complying with the 

proposed SAR requirements? 

• Should there be an exception to the 

proposed SAR filing requirement for 

certain violations that are appropriately 

reported to the SEC under the Federal 

securities laws? 

• Should there be an exception to the 

proposed SAR filing requirement for 

violations with respect to a mutual fund 

advised by the investment adviser, as 

proposed? If not, would requiring 

investment advisers to file SARs while 

exempting mutual funds from an 

investment adviser’s AML/CFT program 

(as proposed) produce any operational 

or other difficulties or challenges? 

• What guidance would be useful in 

identifying activity that may require the 

filing of a SAR? 

• How would an investment adviser 

apply the proposed SAR filing 

obligation for assets held by a qualified 

custodian? How would an investment 

adviser obtain, share, and receive 

information about a customer or 

transactions with a qualified custodian 

regarding potential suspicious activity? 

• Would the ability to share SARs 

with corporate affiliates that are subject 

to their own SAR confidentiality 

regulation assist in furthering the 

purposes of the BSA? 

• Are there other entities or activities 

where the sharing of SARs would 

further the purposes of the BSA? How 

would such sharing be consistent with 

the purposes of the BSA and how would 

investment advisers be able to maintain 

the confidentiality of shared SARs? 

E. Special Information Sharing 

Procedures 

• FinCEN seeks comment on whether 

the proposed rule should apply the 

special information sharing procedures 

under 31 CFR 1010.520 and 1010.540 

implementing sections 314(a) and 

314(b) of the USA PATRIOT Act to 

investment advisers, as proposed at 

§§ 1032.500 and 1032.540 (crossreferencing 31 CFR part 1010, subpart E, 

and 31 CFR 1010.540, respectively). 

• Under what circumstances would 

investment advisers enter into voluntary 

314(b) information sharing 

arrangements? 

F. Special Due Diligence and Section 

311 Measures 

• FinCEN seeks comment on whether 

it is appropriate to apply the special due 

diligence requirements for 

correspondent and private banking 

accounts to investment advisers as 

proposed at 1032.610 and 1032.620 

(cross-referencing 31 CFR 1010.610 and 

1010.620, respectively), and the special 

measures under section 311 of the USA 

PATRIOT Act as proposed at 31 CFR 

1032.600. Would doing so further the 

purposes of the BSA and protect the 

U.S. financial system from national 

security threats? 

• To what extent do investment 

advisers provide advisory services or 

enter into advisory relationships that are 

similar to a ‘‘correspondent account’’ 

relationship as defined at 31 CFR 

1010.605? What about with respect to a 

‘‘correspondent account’’ as that term 

would be amended, as proposed? 

• To what extent do investment 

advisers enter into advisory 

relationships that are similar to a 

‘‘private banking account’’ relationship 

as defined at 31 CFR 1010.605? 

VI. Severability 

If any of the provisions of this 

proposed rule, or the application thereof 

to any person or circumstance, is held 

to be invalid, such invalidity shall not 

affect other provisions or application of 

such provisions to other persons or 

circumstances that can be given effect 

without the invalid provision or 

application. 

VII. Regulatory Analysis 

In accordance with Executive Orders 

12866, 13563, and 14094 (E.O. 12866 

and its amendments),217 this regulatory 

impact analysis (Impact Analysis) is 

composed of a number of assessments of 

the anticipated impacts of the proposed 

rule in terms of its expected costs and 

benefits to affected parties. This analysis 

also includes assessments of the impact 

on small entities pursuant to the 

Regulatory Flexibility Act (RFA) and 

reporting and recordkeeping burdens 

under the Paperwork Reduction Act 

(PRA), as well as consideration of 

whether an assessment under the 

Unfunded Mandates Reform Act of 1995 

(UMRA) is required. 

This Impact Analysis finds that the 

impact associated with the proposed 

rule would primarily affect investment 

advisers (specifically, RIAs and ERAs) 

and U.S. Federal agencies, and estimates 

that the total present value of costs of 

the proposed rule over a 10-year time 

horizon ranges from $4.6 billion to $9.3 

billion, with a primary estimate of $8 

billion, using a 2 percent discount rate. 

The annualized costs over a 10-year 

time horizon range from $500 million to 

$1 billion, with a primary estimate of 

$870 million, using a 2 percent discount 

rate.218 This proposed rule has been 

determined to be a ‘‘significant 

regulatory action’’ under section 3(f) of 

Executive Order 12866 and significant 

under section 3(f)(1) because it may 

have an annual effect on the economy 

of $200 million or greater. 

Table 1 summarizes the benefits and 

costs of the proposed regulation. The 

potential benefits are difficult to 

quantify—and thus are unquantified in 


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Federal Register / Vol. 89, No. 32 / Thursday, February 15, 2024 / Proposed Rules 12139 

this Impact Analysis—but are reported 

alongside the monetized costs: 

BILLING CODE 4810–02–P 

BILLING CODE 4810–02–C 

FinCEN has chosen to issue the 

proposed rule applying AML/CFT 

requirements to RIAs and ERAs instead 

of two regulatory alternatives: (1) 

applying AML/CFT requirements to 

RIAs, ERAs, and State-registered 

investment advisers and (2) requiring 

private funds to collect beneficial 

ownership information on legal entity 

investors. The first alternative would 

expand the requirements of the BSA to 

nearly twice as many entities (as 

compared to the proposed rule) at a 

greater overall cost but provide a similar 

level of benefits (with only limited 


khammond on DSKJM1Z7X2PROD with PROPOSALS4EP15FE24.019</GPH>

Table 1. Summary of Benefits and Costs of the Proposed Regulation 

Annualized 

Monetized 

Benefits 

Unquantified 

Benefits 

Monetized Costs 

Unquantified 

Costs 

Effects on State, 

Local, or Tribal 

Governments 

Effects on Small 

Businesses 

Effects on 

Wa es 

Effects on 

Growth 

NIA NIA NIA 2022 2% 10 years 

• Increase access for law enforcement to relevant information 

for complex financial crime investigations and asset 

forfeiture. 

• Enhance the ability of law enforcement to identify and 

prosecute money laundering and other financial crimes. 

• Enhance interagency understanding of priority national 

security threats and their associated financial activity. 

• Enhance the ability of national security personnel to protect 

against priority national security threats. 

• Improve financial system transparency and integrity, and 

align with international financial standards to strengthen the 

U.S. financial s stem from abuse b illicit actors. 

$870 

• NIA 

No estimated impact to State, local, or 

Tribal governments. 

Estimated annualized cost burden of 

$41,000 for small investment advisers, or 

approximately 2.4 percent of average 

revenues. 

The proposed regulation is not anticipated to 

have si nificant im acts on wa es. 

Investment advisers are likely to pass on the 

increased costs of managing accounts to 

clients through higher fees, which may 

reduce earnin s on investments. 

10 years 

Annualized cost burden 

estimated over 10 years using a 

2 percent discount rate. 
12140 Federal Register / Vol. 89, No. 32 / Thursday, February 15, 2024 / Proposed Rules 

219The U.S. Bureau of Economic Analysis 

reported the annual value of the gross domestic 

product (GDP) deflator in 1995 (the year in which 

UMRA was enacted) as 71.823; and in 2022 as 

127.215. See U.S. Bureau of Economic Analysis, 

Table 1.1.9. ‘‘Implicit Price Deflators for Gross 

Domestic Product,’’ https://apps.bea.gov/iTable/ 

?reqid=19&step=2&isuri=

1&categories=survey%23eyJhcHBpZCI6MTksIn

N0ZXBzIjpbMSwyLDMsM10sImRhdGEiOl

tbIkNhdGVnb3JpZXMiLCJTdXJ2ZXkiXSxbI

k5JUEFfVGFibGVfTGlzdCIsIjEzIl0sWyJGaXJzd

F9ZZWFyIiwiMTk5NSJdLFsiTGFzd

F9ZZWFyIiwiMjAyMSJdLFsiU2NhbGUiLCIw

Il0sWyJTZXJpZXMiLCJBIl1dfQ. Thus, the inflation 

adjusted estimate for $100 million is 127.215 

divided by 71.823 and then multiplied by 100, or 

$177 million. 220See supra section IV.A. 

incremental benefits attributable to 

State-registered investment advisers), 

while the second would reduce the 

costs of the regulation (as compared to 

the proposed rule) while providing 

fewer benefits and only achieving a 

small proportion of the objectives of the 

BSA. 

FinCEN has conducted an initial 

regulatory flexibility analysis (IRFA) 

pursuant to the RFA and finds that the 

proposed rule would have a significant 

economic impact on small entities, 

although FinCEN does not assess the 

number of small entities impacted to be 

substantial. 

As detailed in the PRA analysis, for 

the private sector the proposed rule is 

estimated to result in an estimated onetime, upfront information collection 

burden of 7.65 million hours and an 

average annual information collection 

burden of 5.49 million hours thereafter. 

The estimated one-time, upfront 

information collection cost is 

approximately $454 million and the 

estimated average annual recurring 

information collection cost is 

approximately $316 million thereafter. 

These costs are included in the Impact 

Analysis. 

Pursuant to its UMRA-related 

analysis, FinCEN has not anticipated 

any expenditures for State, local, and 

Tribal governments. FinCEN anticipates 

expenditures by the private sector of 

more than $176 million.219 The UMRArelated analysis for private sector 

entities has been incorporated into this 

Impact Analysis. 

A. Executive Orders 12866 and Its 

Amendments 

As detailed below, Treasury assesses 

that RIAs and ERAs pose a material risk 

of misuse for illicit finance. Including 

investment advisers as ‘‘financial 

institutions’’ under the BSA and 

applying comprehensive AML/CFT 

measures to these investment advisers 

are likely to reduce this risk. 

1. Introduction 

Executive Order 12866 and its 

amendments direct agencies to assess 

costs and benefits of available regulatory 

alternatives and, if regulation is 

necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, and public health and 

safety effects; distributive impacts; and 

equity). Executive Order 13563 

emphasizes the importance of 

quantifying both costs and benefits, 

reducing costs, harmonizing rules, and 

promoting flexibility. This proposed 

rule has been designated a ‘‘significant 

regulatory action’’ under section 3(f) of 

Executive Order 12866 and significant 

under section 3(f)(1). Accordingly, the 

proposed rule has been reviewed by the 

Office of Management and Budget 

(OMB). 

In accordance with OMB guidance, 

this Impact Analysis contains, as 

follows: (1) a statement of the need for 

the regulatory action; (2) a clear 

identification of a range of regulatory 

approaches; and (3) an estimate of the 

benefits and costs—quantitative and 

qualitative—of the proposed regulatory 

action and its alternatives. 

(a) Statement of the Need for, and 

Objectives of, the Proposed Rule 

The primary purpose of the proposed 

rule is to address identified illicit 

finance risks among investment advisers 

(i.e., RIAs and ERAs). Currently, 

investment advisers are not required by 

regulation to apply measures designed 

to address money laundering, terrorist 

financing, and other illicit finance risks 

similar to those which other financial 

institutions are subject. For example, 

investment advisers are generally not 

required to establish an AML/CFT 

program, to conduct customer due 

diligence, or to report suspicious 

customer activity to FinCEN. This 

means that tens of thousands of 

investment advisers overseeing the 

investment of hundreds of trillions of 

dollars into the U.S. economy currently 

do not face regulatory sanction for 

failing to implement the abovementioned measures, creating a material 

weakness in the United States’s 

framework to combat illicit finance. 

As described in detail above, 

investment advisers work closely with 

and provide services that are similar or 

related to services authorized to be 

provided by other BSA-defined 

financial institutions.220 While 

investment advisers do not directly 

custody customer assets, they generally 

must understand their customers’ 

financial background and investment 

goals to provide advisory services, and 

they direct banks and broker-dealers to 

execute transactions and disperse funds 

to support their customers’ investment 

objectives. 

Under the current AML/CFT 

regulatory framework applicable to 

investment advisory activities, the 

financial institutions that engage in 

trading or transactional activities on 

behalf of investment advisers, such as 

banks and broker-dealers, are subject to 

AML/CFT reporting and recordkeeping 

obligations. However, for many of these 

financial institutions, the investment 

adviser, and not the investment 

adviser’s customers, is their customer. 

Consequently, they may rely solely on 

an investment adviser’s instructions and 

lack independent knowledge of the 

adviser’s customers. In some cases, an 

investment adviser may be the only 

person or entity with a complete 

understanding of the source of a 

customer’s invested assets, background 

information regarding the customer, or 

the objectives for which the assets are 

invested. Additionally, an investment 

adviser may use multiple broker-dealers 

or banks for trading or custody services. 

As a result, one financial institution 

may not have the complete picture of an 

adviser’s activity or information 

regarding the identity and source of 

wealth of the advisers’ customers, and 

thus may not be well-positioned to 

assess whether funds managed by the 

adviser may be derived from illicit 

proceeds or associated with a criminal 

or other illicit finance activity. Without 

complete information, such an 

institution may not have sufficient 

information to warrant filing a SAR, or 

may be required to file a SAR that only 

has partial information concerning the 

investment adviser’s transactions on 

behalf of a particular customer. This 

limits the ability of law enforcement to 

identify illicit activity that may be 

occurring through investment advisers. 

As discussed in the preamble, the 

proposed rule would address this gap by 

requiring RIAs and ERAs to implement 

AML/CFT programs, which include 

risk-based procedures for conducting 

ongoing customer due diligence, and 

report suspicious activity to FinCEN, 

among other requirements. RIAs and 

ERAs would be subject to examination 

for compliance with these requirements 

by the SEC. This would reduce 

instances of investment advisers 

unwittingly laundering the illicit 

proceeds on behalf of clients and 

increase the likelihood that authorities 

could detect illicit activity occurring 

through investment advisers and better 


khammond on DSKJM1Z7X2PROD with PROPOSALS4
Federal Register / Vol. 89, No. 32 / Thursday, February 15, 2024 / Proposed Rules 12141 

detect complicit investment advisers 

that knowingly facilitate money 

laundering, terrorist financing, or other 

illicit finance activity. The proposed 

rule would also bring the investment 

adviser industry more in line with its 

counterparts in the U.S. financial sector 

and around the world. 

(b) Summary of the Proposed Rule 

The proposed regulations would add 

‘‘investment adviser’’ to the definition 

of ‘‘financial institution’’ at 31 CFR 

1010.100(t) and add a new provision to 

§ 1010.100 defining the term 

‘‘investment adviser’’ to mean RIAs and 

ERAs. 

With these changes to 31 CFR 

1010.100, the proposed rule would then 

subject RIAs and ERAs to AML/CFT 

requirements applied to financial 

institutions, including requiring them 

to: (i) develop and implement an AML/ 

CFT program; (ii) file SARs and CTRs; 

(iii) record originator and beneficiary 

information for transactions 

(Recordkeeping and Travel Rules); (iv) 

respond to section 314(a) requests; and 

(v) implement special due diligence 

measures for correspondent and private 

banking accounts. 

AML/CFT Program. RIAs and ERAs 

would be required to maintain an AML/ 

CFT program, including: (i) developing 

internal policies, procedures, and 

controls to comply with the 

requirements of the BSA and address 

money laundering, terrorist financing, 

and other illicit finance risks; (ii) 

designating an AML/CFT compliance 

officer; (iii) instituting an ongoing 

employee training program; (iv) 

soliciting an independent test of AML/ 

CFT programs for compliance; and (v) 

implementing risk-based procedures for 

conducting ongoing customer due 

diligence. 

File SARs and CTRs. RIAs and ERAs 

would be required to file a report of any 

suspicious transaction relevant to a 

possible violation of law or regulation 

with FinCEN. In addition, RIAs and 

ERAs would be required to report 

transactions in currency over $10,000. 

Currently, all investment advisers report 

such transactions on Form 8300. Under 

the proposed rule, a CTR would replace 

Form 8300 for RIAs and ERAs. 

Recordkeeping and Travel Rules. RIAs 

and ERAs would be required to obtain 

and retain originator and beneficiary 

information for certain transactions and 

pass on this information to the next 

financial institution in certain funds 

transmittals involving more than one 

financial institution. 

Respond to Section 314(a) Requests. 

FinCEN’s regulations under section 

314(a) enable law enforcement agencies, 

through FinCEN, to reach out to 

financial institutions to locate accounts 

and transactions of persons that may be 

involved in terrorism or money 

laundering. Requests contain subject 

and business names, addresses, and as 

much identifying data as possible to 

assist the financial industry in searching 

their records. 

Special Due Diligence Measures for 

Correspondent and Private Banking 

Accounts. The proposed rule would 

require RIAs and ERAs to maintain due 

diligence measures that include 

policies, procedures, and controls that 

are reasonably designed to enable the 

investment adviser to detect and report, 

on an ongoing basis, any known or 

suspected money laundering or 

suspicious activity conducted through 

or involving any correspondent or 

private banking account that is 

established, maintained, administered, 

or managed in the United States for a 

foreign financial institution. 

(c) Discussion of Concurrent/ 

Overlapping/Conflicting Regulations 

There are no Federal rules that 

directly and fully duplicate, overlap, or 

conflict with the proposed rule. The 

majority of the investment adviser 

industry is not subject to any 

comprehensive AML/CFT requirements. 

FinCEN is aware that requirements 

within the Advisers Act and other 

Federal securities laws impose 

requirements upon investment advisers 

that in some instances are similar to the 

requirements proposed within the 

proposed rule and perform similar roles 

(i.e., improving the integrity of the U.S. 

financial system and protecting 

customers). FinCEN also recognizes that 

the Advisers Act and its implementing 

regulations authorize the SEC to 

regulate the investment adviser industry 

for compliance with these requirements. 

However, while these existing 

requirements are important, and may 

provide a supporting framework for 

implementing certain obligations in the 

proposed rule, they do not impose the 

specific AML/CFT measures in the 

proposed rule in support of the BSA’s 

statutory purposes. Specifically, 

investment advisers are not required to 

develop policies, procedures, and 

internal controls to identify and mitigate 

the risk that the adviser might be used 

for money laundering, terrorist 

financing, or other illicit finance 

purposes. Currently, investment 

advisers are not required to appoint an 

AML/CFT officer or train their 

employees to comply with AML/CFT 

requirements. They are not required to 

report suspicious activity, maintain 

certain transaction records, or respond 

to section 314(a) requests for 

information on customer accounts or 

transactions. The existing rules and 

regulations under the Advisers Act are 

designed to prevent adviser fraud or 

theft of client assets and otherwise 

protect investors, maintain fair, orderly 

and efficient markets, and facilitate 

capital formation. Preventing illicit 

actors from using the investment adviser 

industry to launder the proceeds of 

crime or finance terrorism is not 

contemplated in existing obligations on 

the industry. 

FinCEN recognizes that investment 

advisers that are dually registered as a 

broker-dealer or are chartered as a banks 

(and bank subsidiaries) or are already 

subject to AML/CFT requirements. As 

noted above, FinCEN is not proposing to 

require such entities to establish 

multiple or separate AML/CFT 

programs so long as a comprehensive 

AML/CFT program covers all of the 

entity’s applicable legal and regulatory 

obligations. The program should be 

designed to address the different money 

laundering, terrorist financing, or other 

illicit finance activity risks posed by the 

different aspects of the entities’ 

businesses and satisfy each of the riskbased AML/CFT program requirements 

to which it will be subject in its capacity 

as an investment adviser, broker-dealer, 

or bank under the proposed rule. 

Similarly, an investment adviser that is 

affiliated with, or a subsidiary of, 

another entity required to establish an 

AML/CFT program in another capacity 

would not be required to implement 

multiple or separate programs because 

one single program can be extended to 

all affiliated entities that are subject to 

the BSA, so long as it is designed to 

identify and mitigate the different 

money laundering, terrorist financing, 

and other illicit finance activity risks 

posed by the different aspects of the 

entity’s business and satisfies each of 

the risk-based AML/CFT program and 

other BSA requirements to which the 

entity is subject in all of its regulated 

capacities. 

FinCEN is likewise aware that 

investment advisers serve as advisers to 

mutual funds, which have their own 

AML/CFT program requirements. For 

the reasons described above, FinCEN is 

proposing that an RIA advising a mutual 

fund may deem its AML/CFT program 

requirements with respect to such 

mutual fund satisfied so long as the 

mutual fund has developed and 

implemented an AML/CFT program 

compliant with the AML program 

requirements applicable to mutual 

funds. 

FinCEN is also aware that the SEC 

already examines certain investment 


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12142 Federal Register / Vol. 89, No. 32 / Thursday, February 15, 2024 / Proposed Rules 

221See 15 U.S.C. 80b–2(a)(11) for this definition 

of ‘‘investment adviser.’’ The statute excludes some 

persons and firms: certain banks, certain 

professionals, certain broker-dealers, publishers, 

statistical ratings agencies, and family offices. See 

15 U.S.C. 80b–2(a)(11)(A)–(G). 

222See 17 CFR 275.203–1 and 204–4. A detailed 

description of Form ADV’s requirements is 

available at https://www.sec.gov/oiea/investoralerts-bulletins/ib_formadv.html. 

223Exceptions to this registration requirement 

include (1) venture capital advisers, (2) private fund 

advisers with AUM under $150 million, (3) advisers 

to life insurance companies, (4) foreign private 

advisers, (5) advisers to charitable organizations, (6) 

certain commodity trading advisers, (7) advisers to 

small business investment companies, and (8) 

advisers to rural business investment companies. 

See 15 U.S.C. 80b–3(b). 

224Other exceptions to the prohibition on SEC 

registration include: (1) an adviser that would be 

required to register with 15 or more States (the 

multi-State exemption); (2) an adviser advising a 

registered investment company; (3) an adviser 

affiliated with an RIA; and (4) a pension consultant. 

Persons satisfying these criteria and the definition 

of ‘‘investment adviser’’ are required to register as 

investment advisers with the SEC. See Form ADV: 

Instructions for Part IA, Item 2. Advisers with a 

principal office and place of business in New York 

and over $25 million AUM are required to register 

with the SEC. 

225 17 CFR 275.203A–1. Note that if an RIA’s 

AUM falls below $90 million as of the end of such 

RIA’s fiscal year then it must withdraw its 

registration with the SEC, unless otherwise eligible 

for an exception to the prohibition on SEC 

registration. 

226See sections 203(l) and 203(m) of the Advisers 

Act and 17 CFR 275.203(l)–1 and 275.203(m)–1, 

respectively. 

advisers for compliance with the 

Advisers Act and implementing 

regulations. FinCEN anticipates that the 

SEC’s examination of RIA and ERA 

compliance with new requirements will 

be incorporated into its risk-based 

examination program. 

(d) Report Organization 

This Impact Analysis is structured as 

follows. Section 2 assesses the nature 

and characteristics of the entities and 

their business that will be affected by 

the proposed rule. Section 3 then 

identifies the expected benefits of the 

proposed rule, and section 4 then 

assesses the expected costs of the 

proposed rule to both the private sector 

and government and explains the 

methodology for doing so. Section 5 

then assesses potential regulatory 

alternatives to issuing the proposed 

rule. 

Following the Impact Analysis are the 

regulatory analyses required by the 

RFA, PRA, UMRA, and other similar 

laws. These analyses rely on certain 

calculations in the Impact Analysis. 

Following those are a series of questions 

for public comment regarding the 

Impact Analysis and its methodology 

which aim to test and refine the 

assumptions and calculations made 

within the Impact Analysis. 

2. Affected Entities 

This section identifies and 

characterizes the population of 

investment advisers that are likely to be 

impacted by the proposed rule. The 

proposed rule would cover both RIAs 

and ERAs. These groups generally may 

vary in terms of their business structure, 

AUM, number of employees, and 

number of client relationships. As 

explained below, these differences affect 

the estimated burden of the proposed 

rule, in part, because depending on their 

business structure, some RIAs and ERAs 

may already be implementing AML/CFT 

measures to some degree. 

To establish a pre-regulation baseline, 

this section provides a profile of 

investment advisers likely to be affected 

by the proposed rule. First, it describes 

which investment advisers will be 

affected by the proposed rule and on 

what basis. Next, it describes how RIAs 

and ERAs are categorized based on 

business structure, in ways that align 

with the expected costs of the proposed 

rule. Next, it describes the baseline level 

of economic activity for each type of 

entity. Finally, it describes other 

characteristics of the regulated 

population, including the number of 

small businesses. 

(a) Universe of Investment Advisers 

Affected by the Proposed Rule 

The Advisers Act defines an 

investment adviser as a person or firm 

that, for compensation, is engaged in the 

business of providing advice to others or 

issuing reports or analyses regarding 

securities.221 The proposed rule would 

cover two subsets of investment 

advisers: RIAs, who register or are 

required to register with the SEC; and 

ERAs, who are exempt from registration 

but must report certain information to 

the SEC. 

Each RIA and ERA must submit the 

Uniform Application for Investment 

Adviser Registration (commonly known 

as Form ADV) and update it on an 

annual basis with the SEC.222 Form 

ADV is an SEC-administered selfdisclosure form that collects certain 

information about each RIA and ERA. 

RIAs must report ownership, clients, 

employees, business practices, 

custodians of client funds, and 

affiliations, as well as any disciplinary 

events of the adviser or its employees, 

and marketing and certain disclosure 

reporting materials it provides to 

clients. ERAs report a subset of this 

information. 

i. SEC Registration and Reporting 

Criteria 

Unless eligible to rely on an 

exemption, investment advisers that 

manage more than $110 million must 

register with the SEC, rather than a State 

authority, as well as submit a Form ADV 

and update it at least annually.223

Besides having AUM above $110 

million, additional criteria may result in 

an investment adviser registering with 

the SEC.224 For example, investment 

advisers with AUM of at least $100 

million but less than $110 million are 

allowed, but not required, to register 

with the SEC. Unless a different 

exception from the prohibition on 

registration applies, investment advisers 

with AUM under $100 million are 

prohibited from registering with the 

SEC,225 but must register instead with 

the relevant State securities regulator. 

An ERA is an investment adviser that 

would be required to register with the 

SEC but is statutorily exempt from such 

requirement because: (1) it is an adviser 

solely to one or more venture capital 

funds, or (2) it is an adviser solely to 

private funds and has AUM in the 

United States of less than $150 

million.226 ERAs are required to report 

to the SEC on Form ADV. 

ii. Size of the Regulated Population 

The number of RIAs and ERAs is 

well-defined based on the number of 

Form ADV filings. Table 2.1 shows the 

number of RIAs and ERAs as of July 

2023 based on each inclusion criterion 

listed above. One RIA was excluded 

from the regulated population because 

they reported an implausibly high 

number of total clients. 


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Federal Register / Vol. 89, No. 32 / Thursday, February 15, 2024 / Proposed Rules 12143 

227Based on a Treasury review of Form ADV 

information filed as of July 31, 2023. See supra 

n.26. The sum across individual categories for RIAs 

and ERAs is greater than the total because each 

investment adviser may belong in more than one 

category. 

228This category also includes already-registered 

RIAs whose AUM is less than $100 million but at 

least $90 million. 

229ERAs report gross assets for each fund they 

advise, but only if that fund is not reported by 

another RIA in its own Form ADV; therefore, some 

ERAs report zero gross assets because all of the 

funds they advise are also reported by another RIA. 

230See 31 CFR 1010.100(gg). See section IV.B for 

additional detail on the treatment of mutual funds 

under the proposed rule. 

231FinCEN does not propose to permit 

investment advisers to exempt mutual funds that 

they advise from the requirements 31 CFR part 

1010, subparts E and F (31 CFR 1010.520, 1010.540, 

and 1010.600 through 1010.670) that FinCEN 

proposes to apply to RIAs and ERAs in the 

proposed rule (e.g., certain information sharing, 

special standards, prohibitions, and other 

requirements). 

232See Treasury, 2022 National Money 

Laundering Risk Assessment, p. 63–66, https://

home.treasury.gov/system/files/136/2022-NationalMoney-Laundering-Risk-Assessment.pdf. 

233See SIFMA No Action Letter, supra n. 52; see 

also Managed Funds Association, Sound Practices 

for Hedge Fund Managers (2009), Chapter 6 (AntiMoney Laundering). 

In total, there are 15,391 RIAs, with 

total AUM of $125 trillion and roughly 

972,000 total employees. There are also 

5,846 ERAs with total gross assets of 

$5.2 trillion (ERAs do not report the 

number of employees to the SEC).229

With limited exceptions, the proposed 

rule would not apply to RIAs with 

respect to their mutual funds 230 (ERAs 

do not advise mutual funds).231

Therefore, as a practical matter, RIAs 

that exclusively advise mutual funds 

would be exempt from most the 

requirements of this rule. Details on cost 

estimates for these advisers are provided 

in the next sub-section. 

(b) Categorizing the Regulated 

Population Based on Business Structure 

The economic impact of the proposed 

rule will depend on an adviser’s 

business structure and the extent to 

which such an adviser is already 

implementing some AML/CFT 

requirements. FinCEN assesses that 

RIAs and ERAs dually registered as 

broker-dealers or banks, are a subsidiary 

or affiliate of a bank or broker-dealer are 

more likely to already apply a 

significant or moderate number of the 

requirements of the proposed rule. 

Additionally, as described below, 

survey data indicates that some RIAs are 

already implementing certain 

requirements of the proposed rule. 

RIAs and ERAs are also subject to a 

variety of regulations and reporting 

requirements, such as those under the 

Federal securities laws, in addition to 

the proposed rule. In some cases, 

compliance with existing regulations 

under the Federal securities laws may 

reduce the burden of the proposed rule. 

In addition, RIAs and ERAs rely on 

third-party entities to execute business 

services, and those entities may be 

required to comply with AML/CFT 

regulations. Depending on the business 

structure of an RIA or ERA, such thirdparty relationships may also reduce the 

burden of the proposed rule. 

Therefore, FinCEN categorized RIAs 

and ERAs based on their likelihood of 

having existing AML/CFT measures in 

place, and the extent of those measures. 

This subsection first details the 

justification for the categorization, based 

on the regulatory structure of the 

investment adviser industry and 

associated institutions. The subsection 

then describes each category of the 

regulated population. 

i. Dual Registrants and AML/CFTCompliant Entities Associated With 

RIAs and ERAs 

Some RIAs and ERAs are dually 

registered as, subsidiaries of, or 

affiliated with, entities that are already 

subject to AML/CFT obligations and, 

therefore, may already be applying such 

obligations to their advisory activities, 

although they may not be legally 

obligated to do so.232 For instance, dual 

registrants may seek to provide 

customers with both brokerage and 

advisory services, and apply AML/CFT 

measures across their businesses rather 

than incurring greater costs by 

duplicating measures across each 

business. Additionally, some AML/CFT 

measures, such as employee training 

and initial customer due diligence, can 

be designed to apply across a firm rather 

than to specific activities. 

Further, in past Treasury outreach to 

financial institutions, those that have a 

financial subsidiary subject to AML/ 

CFT program obligations as well as a 

subsidiary investment adviser have 

indicated they choose to typically apply 

an enterprise-wide AML/CFT program 

extending to all their subsidiaries and 

their customers so that all business lines 

or entities in their corporate enterprise 

are subject to consistent risk practices 

and procedures. 

In other circumstances, an RIA or 

ERA may perform AML/CFT functions 

via contract with a broker-dealer or 

other financial institution, such as when 

the adviser advises a mutual fund, or 

the adviser may have voluntarily 

implemented certain AML/CFT 

measures, such as due diligence or 

identification requirements.233 Many 

RIAs and ERAs also frequently use the 

services of certain third-party entities 

that are required to comply with AML/ 

CFT regulations, namely, prime brokers, 

qualified custodians (e.g., banks), and in 

some circumstances, fund 

administrators. 


khammond on DSKJM1Z7X2PROD with PROPOSALS4EP15FE24.020</GPH>

Table 2.1. Regulated Population of RIAs and ERAs227 

RIAS ERAs 

AUM> 

AUMat $25 Other 

Least $100 Million, Reason for VCFund Private 

Million228 no State- Registration Fund 

level 

Exam 

Number of 

investment 13,313 468 2,986 2,016 4,422 

advisers 

Total 15,391 5,846 
12144 Federal Register / Vol. 89, No. 32 / Thursday, February 15, 2024 / Proposed Rules 

234See 17 CFR 275.206(4)–2. 

235See 17 CFR 275.206(4)–7. 236See 15 U.S.C. 80b–4(b). 

ii. Existing Laws and Regulations 

The Advisers Act and its 

implementing rules and regulations 

form the primary existing framework 

governing investment adviser activity. 

Some rules and regulations that apply to 

RIAs are relevant to AML/CFT 

compliance and may lower the cost of 

compliance, including, as discussed 

further below: (1) the Custody Rule, 

which governs the custody of client 

funds and securities, often through 

relationships with qualified custodians 

who are often subject to AML/CFT 

requirements; and (2) the Compliance 

Rule, which governs policies and 

procedures designed to prevent 

violations of the Advisers Act, and 

establishes a procedural and 

organizational framework that RIAs may 

be able to build upon to implement 

AML/CFT measures, thus lowering the 

cost of compliance with the proposed 

rule. 

Custody Rule. The Custody Rule 

requires that client funds or securities 

over which an RIA has custody be held 

at a qualified custodian.234 The 

qualified custodian may hold the funds 

or securities in separate accounts for 

each client under that client’s name; or 

in accounts under the name of the RIA 

as agent or trustee for clients, with only 

client funds and securities inside. 

Qualified custodians can be banks, 

registered broker-dealers, futures 

commission merchants, or certain 

foreign entities. Because such qualified 

custodians are BSA-defined financial 

institutions (or their equivalents under 

foreign law) that must comply with 

AML/CFT regulations, accounts 

maintained on behalf of an RIA—and 

the associated client relationships—are 

subject to AML/CFT requirements. 

Compliance Rule. Under the 

Compliance Rule,235 an RIA must adopt 

and implement written policies and 

procedures reasonably designed to 

prevent violations of the Advisers Act 

and the rules thereunder. RIAs must 

review their policies and procedures at 

least annually and designate a chief 

compliance officer to administer the 

policies and procedures. Although these 

policies and procedures do not include 

requirements that an RIA comply with 

the BSA, having written policies in 

place may reduce the time needed to 

develop and review specific AML/CFT 

policies and procedures. Alternatively, 

having a framework in place for 

establishing policies and procedures 

may be useful for RIAs in complying 

with the proposed rule. Additionally, 

the presence of a compliance officer 

may reduce costs associated with 

designating an AML/CFT compliance 

officer, for example by dual-hatting the 

current chief compliance officer. 

Other Requirements. Certain private 

fund advisers also fill out Form PF, 

which requires disclosure of limited 

beneficial ownership information; for 

example, the percentage of the fund’s 

equity owned by broker-dealers, 

pension plans, and U.S. and non-U.S. 

persons.236 Some investment advisers 

may have policies and procedures to 

comply with OFAC sanctions, which 

similarly may provide a framework for 

implementing certain AML/CFT 

measures included in the proposed rule. 

Due to these information collection 

requirements, RIAs and ERAs already 

compile varying amounts of information 

that could be useful in AML/CFT 

compliance—particularly information 

related to the identity and citizenship of 

various clients. Such information 

collection activities would lower the 

burden of the proposed rule on RIAs 

and ERAs. 

iii. RIA and ERA Categories for Cost 

Analyses 

As described above, some RIAs and 

ERAs are already applying some AML/ 

CFT requirements (although there is no 

legal requirement to do so). This is 

primarily because of their registration as 

or affiliation with another type of BSAdefined financial institution (such as a 

broker-dealer). Therefore, the baseline 

level of AML/CFT measures for an RIA 

or ERA may vary with their business 

structure. For the purposes of the cost 

analysis, FinCEN categorized RIAs and 

ERAs based on business structure and 

likelihood of having existing AML/CFT 

measures in place in the baseline. 

Based on discussions with industry, 

information from the 2016 Investment 

Management Compliance Testing 

Survey (IMCTS Survey), and the 

framework described above, FinCEN 

assessed that dual registrants are most 

likely to already have a significant 

number of AML/CFT measures in place. 

An RIA or ERA with a significant 

number of AML/CFT measures in place 

is assessed to be applying most 

requirements in the proposed rule, 

including filing SARs, recordkeeping, 

information sharing, and special due 

diligence measures. Any modifications 

to existing policies or procedures, such 

as training programs, are assumed to be 

small and would be incorporated into 

existing routine maintenance, review, 

and updating procedures. 

FinCEN also assessed that the 

majority of RIAs and ERAs affiliated 

with a bank or broker-dealer are most 

likely to have a moderate number of 

AML/CFT measures, though they are 

less likely than dual registrants to have 

a significant number AML/CFT 

measures in place. An RIA or ERA with 

a moderate number of AML/CFT 

measures in place are assessed as more 

likely to implement internal 

recordkeeping, annual training 

programs, and initial customer due 

diligence. However, these RIAs and 

ERAs are less likely to meet SAR filing, 

ongoing due diligence, information 

sharing, and special due diligence 

requirements under the BSA. These 

additional measures would need to be 

implemented under the proposed rule. 

Finally, FinCEN assessed that while 

most RIAs or ERAs that are not dually 

registered or affiliated with a bank or 

broker-dealer are currently 

implementing a limited number of 

AML/CFT measures, a minority of that 

subgroup are currently implementing a 

moderate number of—rather than a 

limited number of—AML/CFT 

measures. An RIA or ERA with a limited 

number of AML/CFT measures in place 

would need to implement most of the 

requirements in the proposed rule, 

except that they are likely to be 

collecting some customer information at 

the beginning of the client relationship 

and filing reports (Form 8300) that are 

substantially similar to CTRs. 


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Federal Register / Vol. 89, No. 32 / Thursday, February 15, 2024 / Proposed Rules 12145 

237 Items 6.A.(1) and 6.A.(7) on Form ADV require 

an investment adviser to identify whether it is 

actively engaged in a particular business. This 

response does not necessarily mean that the 

investment adviser is registered as a broker-dealer 

or as a bank. The phrase ‘‘dual registrant’’ should 

be interpreted on this basis for purposes of this 

analysis. 

238A related person is any advisory affiliate (as 

defined for purposes of Form ADV) of and any 

person that is under common control (as defined for 

purposes of Form ADV) with the investment 

adviser. See Form ADV, Glossary of Terms. 

239See 2016 IMCTS Survey, supra n. 150. 

240 Id. 241See, e.g., SIFMA No Action Letter, supra n. 52. 

242 Investment advisers are currently required to 

file reports for the receipt of more than $10,000 in 

cash and negotiable instruments using joint 

FinCEN/Internal Revenue Service Form 8300. See 

supra, n. 50. 

First, RIAs and ERAs were categorized 

into three types of entities based on 

business structure: advisers that are 

dually registered as broker-dealers or as 

banks (‘‘dual registrants’’); advisers that 

are affiliated with a broker-dealer or 

bank (‘‘affiliated advisers’’); and all 

others that are not affiliated advisers or 

dual registrants (i.e., ‘‘other advisers’’). 

Because broker-dealers and banks must 

comply with AML/CFT requirements, 

dual registrants are more likely to have 

a significant number of AML/CFT 

measures in place, and this is reflected 

in the baseline. Similarly, affiliated 

advisers are more likely than other 

advisers to have a moderate number of 

AML/CFT measures in place in the 

baseline. Formally, FinCEN defined 

each group based on Form ADV filings 

as follows: 

• Dual registrants. RIAs or ERAs that 

report to the SEC that they are actively 

engaged in business as a broker-dealer 

or bank, responding ‘‘Yes’’ to Item 

6.A.(1) and/or Item 6.A.(7).237

• Affiliated advisers. RIAs or ERAs 

that report to the SEC that they have a 

related person that is a broker-dealer or 

bank (responding ‘‘Yes’’ to Item 7.A.(1) 

and/or Item 7.A.(8)) and are not also 

dual registrants.238

• Other advisers. All RIAs or ERAs 

that are neither dual registrants nor 

affiliates of broker-dealers or banks. 

FinCEN separately categorized RIAs 

and ERAs into the three groups. 

Although the size of each group is welldefined based on Form ADV data, the 

extent of existing AML/CFT measures 

within each group is uncertain and may 

vary considerably. The 2016 IMCTS 

Survey collected information from 

approximately 700 RIAs on their 

existing implementation of AML/CFT 

measures.239 According to the 2016 

IMCTS Survey, as of 2016, 

approximately 40 percent of RIAs had 

already adopted AML/CFT policies 

consistent with the Second Proposed 

Investment Adviser Rule.240 An 

additional 36 percent of RIAs adopted 

some AML/CFT policies and 

procedures, but those were not in line 

with those in the Second Proposed 

Investment Adviser Rule. Therefore, 

approximately 76 percent of RIAs had at 

least some AML/CFT measures in place 

as of 2016. In particular, 49 percent had 

annual employee AML/CFT training, 24 

percent had a designated an AML/CFT 

compliance officer, and 40 percent 

performed independent testing of their 

AML/CFT program annually. Similar 

information was not available for ERAs. 

Based on this information, FinCEN 

assumed in the baseline for the 

proposed rule, that a minority—but as 

many as 40 percent—of RIAs had in 

place AML/CFT measures consistent 

with the requirements of the proposed 

rule. However, that proportion likely 

varies across the three groups defined 

above. Based on discussions with 

industry and the framework described 

above, FinCEN assessed that dual 

registrants are most likely to already 

have a significant number of AML/CFT 

measures in place (even if such 

measures are not required for their 

advisory activities). FinCEN also 

assessed that the majority of affiliated 

advisers implement a moderate number 

of AML/CFT measures, though they are 

less likely than dual registrants to have 

a significant number of AML/CFT 

measures in place. Finally, FinCEN 

assessed that while most ‘‘other’’ 

advisers are currently implementing a 

limited number of AML/CFT measures, 

a minority are currently implementing a 

moderate number of—rather than a 

limited number of—AML/CFT 

measures. 

Specifically, FinCEN assessed that a 

dual registrant is highly likely to be 

applying a significant number of AML/ 

CFT measures, including filing SARs, 

recordkeeping, information sharing, and 

special due diligence measures. Any 

modifications to existing policies or 

procedures, such as training programs, 

are likely to be small and would be 

incorporated into existing routine 

maintenance, review, and updating 

procedures. 

For RIAs and ERAs with a moderate 

number of AML/CFT measures in place, 

such as most affiliated advisers, FinCEN 

assessed that existing programs most 

likely include internal recordkeeping, 

annual training programs, and initial 

customer due diligence.241 However, 

these RIAs and ERAs are less likely to 

meet SAR filing, ongoing due diligence, 

information sharing, and special due 

diligence requirements under the BSA. 

These RIAs and ERAs would need to 

implement additional measures under 

the proposed rule. 

The remaining RIAs and ERAs, which 

have a limited number of AML/CFT 

measures in place, would need to 

implement most of the additional AML/ 

CFT requirements under the proposed 

rule. However, FinCEN assessed that all 

RIAs and ERAs are likely to be 

collecting some customer information at 

the beginning of the client relationship 

and filing reports 242 that are 

substantially similar to CTRs. 

Based on this assessment, the RIAs 

and ERAs in each of the three groups 

were divided based on the proportion 

that FinCEN estimated to be 

implementing a significant, a moderate, 

or a limited number of AML/CFT 

measures in the baseline. Because the 

exact distribution is unknown, FinCEN 

used different assumptions to generate 

lower and upper bounds and identify a 

primary estimate. In this case, ‘‘lower 

bound’’ means more RIAs and ERAs 

have a significant or moderate number 

of AML/CFT measures in place and will 

have to implement relatively fewer 

additional measures under the proposed 

rule, while ‘‘upper bound’’ means more 

RIAs and ERAs have a limited number 

of AML/CFT measures in place and will 

have to implement relatively more 

additional measures under the proposed 

rule. To inform the primary estimate, 

FinCEN used the following 

assumptions. For RIAs, FinCEN used 

information from the 2016 IMCTS 

Survey as a benchmark for the primary 

estimate. 

Based on the 2016 IMCTS Survey, 

FinCEN assumed that 75 percent of 

affiliated RIAs had implemented a 

moderate number of AML/CFT 

measures. Based on the number of 

affiliated RIAs, the remaining 

approximately 34 percent of other RIAs 

are implementing a moderate number of 

AML/CFT measures. For the upper 

bound estimate, FinCEN assumed that 

the AML/CFT measures implemented 

by RIAs and ERAs either under the 

current regulatory framework or 

voluntarily would not meet the 

requirements of the proposed rule, 

therefore all RIAs that are not dually 

registered would have to implement the 

complete set of AML/CFT measures 

under the proposed rule. Based on that 

assumption, all RIAs and ERAs except 

dually registered entities are assumed to 

have implemented a limited number of 

AML/CFT measures. For the lower 

bound estimate, FinCEN assumed that 

40 percent of all RIAs regardless of 

business structure are implementing a 

significant number of AML/CFT 

measures and 36 percent are 


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12146 Federal Register / Vol. 89, No. 32 / Thursday, February 15, 2024 / Proposed Rules 

243Parentheses indicate the percentage of entities 

within a given category by scenario. Totals may not 

sum precisely due to rounding. 

implementing a moderate number of 

measures—this includes a mix of 

affiliated and other RIAs. 

FinCEN lacks information on the 

extent to which ERAs are already 

implementing AML/CFT requirements. 

Absent a better method to estimate, 

FinCEN assumed the proportion of dualregistered, affiliated, and other ERAs 

meeting AML/CFT requirements was 

the same as for RIAs across all 

scenarios. FinCEN seeks comment on 

this assumption, including whether a 

more appropriate method to estimate 

these proportions is available. 

Classification of RIAs Advising 

Registered Funds. As discussed above, 

RIAs that exclusively advise mutual 

funds will be largely exempt from the 

requirements of the proposed rule. 

However, these RIAs have not been 

identified specifically through the Form 

ADV data. FinCEN assumed these 

advisers were most likely in the other 

advisers group. Because the clients (i.e., 

the mutual funds) of these RIAs are 

subject to comprehensive AML/CFT 

obligations, FinCEN assessed these 

advisers as having a moderate number 

of AML/CFT measures in place. 

Table 2.2 shows the resulting size of 

the population for each of the scenarios 

described above. 

(c) Baseline Economic and Financial 

Characteristics of Regulated Population 

This subsection describes the 

economic and financial profiles of RIAs 

and ERAs subject to the proposed rule 

in the baseline, including the number of 

employees and customer relationships 

with legal entities, natural persons, and 

pooled investment vehicles (PIVs)—and 

annual changes in these numbers. 

i. Number of Employees 

RIAs report their employee numbers 

on Form ADV, but ERAs do not. To 

estimate the number of employees at 

ERAs, FinCEN assumed that the number 

of employees was similar to those at 

RIAs with the same number of private 

funds. In particular, the number of ERA 

employees was approximated as 

follows. First, FinCEN focused on RIAs 

with private funds only. FinCEN 

calculated deciles for the number of 

funds among each RIA category: dual 

registrants, affiliated RIAs, and other 

RIAs. Then, for each category of ERA, 

FinCEN calculated the average number 

of employees for the decile of the 

corresponding distribution of RIAs, 

based on the number of private funds 

advised by that ERA. This served as the 

approximation for the total number of 

ERA employees in the cost calculation. 

Table 2.3 shows the average number of 

employees for each category of 

investment adviser. 


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Table 2.2. Number of RIAs and ERAs, by Scenario243 

Baseline Re istered Investment Advisers Exem Advisers 

Scenario AML/CFT Dual Affiliated Other Dual Affiliated Other Total 

Measures Re istrants Advisers Advisers Re istrants Advisers Advisers 

Significant 436 1,727 4,307 44 216 1,877 8,607 100% 75% 34% 100% 75% 34% 

Lower Moderate 0 576 4,795 0 72 2,090 7,533 25% 38% 25% 38% Bound 3,550 1,547 Limited 0 0 28% 0 0 28% 5,097 

Total 436 12,652 44 288 5,514 21,237 

Significant 436 0 0 44 0 0 480 100% 100% 

Upper Moderate 0 0 0 0 0 0 0 

Bound Limited 0 2,303 12,652 0 288 5,514 20,757 100% 100% 100% 100% 

Total 436 2 03 12 652 44 288 5 14 21237 
Federal Register / Vol. 89, No. 32 / Thursday, February 15, 2024 / Proposed Rules 12147 

244Based on a Treasury review of Form ADV 

information filed as of July 31, 2023. See supra n. 

26. RIAs report total employees in Item 5.A. ERA 

data come from FinCEN calculations, calculated as 

the median employment among RIAs that report 

only private fund clients. 

245 Id. Clients are reported in Item 5.D. Natural 

persons are calculated as the sum of 5.D.(a).(1) and 

5.D.(b).(1). PIVs are reported in 5.D.(f).(1), and 

exclude investment companies and business 

development companies. Legal entities are the sum 

of the remaining rows of column 1 of Item 5.D. 

Numbers are rounded to the nearest integer. 

246 Id. The total number of funds is calculated as 

the sum of the number of funds reported in 

Schedule D, sections 7.B.(1) and 7.B.(2). Numbers 

are rounded to the nearest integer. 

ii. Number of Clients 

On Form ADV, RIAs report the 

number of clients, enumerated for 

specific types of clients.245 As described 

in section 3 of this Impact Analysis, 

certain costs of the proposed rule vary 

depending on the type of client, across 

three categories of clients: individual 

persons including high-net worth 

individuals, collectively known as 

‘‘natural persons’’; PIVs; and various 

other types of clients collectively 

denoted as ‘‘legal entities.’’ Table 2.4 

shows the average number of clients of 

each type, based on the RIA categories 

defined above. 

ERAs report the number of private 

funds they advise (i.e., an ERA’s 

clients), including the number of funds 

for which another investment adviser 

already reports fund-specific 

information. Table 2.5 reports the 

average number of funds reported per 

ERA, based on the investment adviser 

categories described above. 

(d) Other Characteristics of Regulated 

Entities 

This section describes the industry 

classification and business size of RIAs 

and ERAs to be regulated under the 

proposed rule. 

i. Industry Classification by NAICS 

Code 

In general, businesses may be 

categorized under multiple industries 

due to having multiple lines of revenue 

or multiple business functions. Many 

RIAs and ERAs, including but not 

limited to dual registrants, accordingly 

may report multiple lines of revenue 

(for purposes of the NAICS Codes) on 

Form ADV, and it is challenging to 

identify their primary line of business. 

Using the North American Industry 

Classification System (NAICS), the 

standard classification system used by 

Federal statistical agencies in classifying 

business establishments for the purpose 

of collecting, analyzing, and publishing 

statistical data on U.S. businesses, 

FinCEN assesses that most (if not all) 

RIAs and ERAs are classified within 

NAICS subsector 523 (Securities, 

Commodity Contracts, and Other 

Financial Investments and Related 

Activities)—with most entities classified 

in NAICS 5239 (Other Financial 

Investment Activities). However, that 

subsector may not account for the 

primary line of business of all 

investment advisers and some may be 

classified under NAICS 522 (Credit 

Intermediation and Related Activities) 

or NAICS 525 (Funds, Trusts, and Other 

Financial Vehicles). 

ii. Small Entities 

To assess the prevalence of small 

businesses affected by the proposed 

rule, FinCEN relied on the small entity 

definition under the Advisers Act rule 

adopted for purposes of the RFA. Under 

this definition, an investment adviser is 

considered a small entity if (i) it has, 

and reports on Form ADV, less than $25 

million in assets under management ; 

(ii) it has less than $5 million in total 

assets on the last day of its most recent 

fiscal year; and (iii) it does not control, 

is not controlled by, and is not under 

common control with another 


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Table 2.3: Average Number of Employees, by Type of Investment Adviser244 

Investment Adviser Type RIAs ERAs 

Dual Registrant 878 27 

Affiliated Adviser 149 26 

Other Adviser 19 11 

Table 2.4: Average Number of Clients per RIA, by Client Type and Category 

Investment Adviser Type Natural Legal Entities PIVs Persons 

Dual Registrant 43,450 919 14 

Affiliated Adviser 10,476 254 18 

Other Adviser 682 142 4 

Table 2.5: Average Number of Private Funds per ERA, by Category246 

Investment Adviser Type Average Number of 

Private Funds Reported 

Dual Registrant 4 

Affiliated Adviser 63 

Other Adviser 5 
12148 Federal Register / Vol. 89, No. 32 / Thursday, February 15, 2024 / Proposed Rules 

247 17 CFR 275.0–7 (defining ‘‘small business’’ or 

‘‘small organization’’ for purposes of the Advisers 

Act). 248The SEC’s rationale, which FinCEN adopts, is 

that for an investment adviser to constitute an ERA 

for SEC purposes, the adviser would need to have 

an obligation to register with the SEC. An 

investment adviser with assets under management 

low enough to qualify as a small entity would not 

have an obligation to register with the SEC. See 88 

FR 63206, 63383 n. 1895 regarding small entity 

ERAs. 249Based on a Treasury review of Form ADV 

information filed as of July 31, 2023. See supra n. 

26. An RIA qualifies as a small entity under the 

SEC’s definition if it has fewer than $25 million in 

regulatory AUM (Item 5.F.(2)(c)) and answers ‘‘No’’ 

to each of the questions in Item 12. ERAs were 

presumed not to meet the definition of small entity, 

as discussed above. 

250 Id. See tables above for details on the Form 

ADV items used to calculate each table entry. 

Numbers are rounded to nearest whole number or 

percent. 

251See FinCEN, Year in Review for FY 2022 (Apr. 

21, 2023), p.2, https://www.fincen.gov/sites/default/ 

files/shared/FinCEN_Infographic_Public_2023_

April_21_FINAL.pdf. 

investment adviser that is not a small 

entity.247

On Form ADV, RIAs report whether 

they meet the conditions listed above. 

As of July 2023, there were 573 small 

entities, as reported in Table 2.6. ERAs 

do not report whether they meet the 

conditions above. However, based on a 

recent SEC rulemaking, and using the 

SEC’s rationale here, FinCEN concluded 

that zero ERAs met the definition of 

small entity.248

Table 2.7 shows the characteristics of 

small RIAs compared to all other RIAs. 

3. Assessment of Benefits 

The benefits assessed here are more 

difficult to quantify than the costs, but 

are nonetheless substantial. The primary 

direct benefits of the proposed rule are 

expected to primarily accrue in the 

public sector, most notably to U.S. law 

enforcement and the national security 

community, as well as certain Federal 

functional regulators, as well as to the 

investment adviser industry. Further, 

the identification of illicit activity in the 

investment adviser industry by applying 

reporting and recordkeeping obligations 

to those industry participants, RIAs and 

ERAs, that have direct access to 

customer information would enhance 

detecting, investigating and prosecuting 

illicit finance activity occurring through 

the industry. The AML/CFT 

requirements in the proposed rule will 

help address existing information gaps 

regarding suspicious activity reporting 

discussed in section 1. They will also 

help harmonize AML/CFT requirements 

between investment advisers and 

similarly situated financial institutions 

that must comply with these 

requirements. 

In addition, while each provision in 

the proposed rule may not directly 

provide a benefit, each provision 

indirectly does so because it forms part 

of a comprehensive framework for 

identifying and reporting money 

laundering, terrorist financing, or other 

illicit finance activity. For instance, 

while the requirement for employee 

training and independent testing do not 

directly lead to increased identifying of 

illicit finance activity, they help ensure 

that the systems and employees who 

will identify whether an investment 

adviser is being used for such activity 

are best positioned to do so. 

Specific benefits from the proposed 

rule include (i) increasing access for law 

enforcement to relevant information for 

complex financial crime investigations, 

(ii) enhancing interagency 

understanding of priority national 

security threats and their associated 

financial activity, and (iii) improving 

financial system transparency and 

integrity, including by aligning with 

international financial standards to 

strengthen the U.S. financial system 

from abuse by illicit actors. Through 

these direct benefits, crucial indirect 

benefits would accrue to the public at 

large by reducing money laundering, 

countering the financing of terrorism 

and other illicit finance activity, and 

protecting national security. 

(a) Strengthening Law Enforcement 

Investigations of Certain Financial 

Crimes 

Requiring RIAs and ERAs to file SARs 

and keep certain customer records 

would make that information more 

readily available to law enforcement 

authorities, assisting those authorities in 

detecting, investigating, and prosecuting 

financial crimes. The FBI reported that 

36.3 percent of active complex financial 

crimes investigations and 27.5 percent 

of public corruption investigations 

involved BSA reporting.251 However, for 

other types of criminal investigations, 

the percentage of criminal investigations 

supported by BSA reporting was even 

higher. For example, 46 percent of 


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Table 2.6: Number of Small Entities, by Type of Investment Adviser249 

Investment Adviser Type RIAs ERAs 

Dual Registrant 5 0 

Affiliated Adviser 49 0 

Other Adviser 519 0 

Table 2. 7: Characteristics of RIAs by Business Size250 

Characteristic Small Entities All Other 

RIAs 

Average No. Employees 6 65 

Percent that Advise Private Funds 23% 55% 

Avg. No. Individual Clients 1,003 3,450 

Avg. No. High-net Worth Clients 1 492 

Avg. No. PIV Clients 0 7 

Avg. No. Legal Entity Clients 15 187 
Federal Register / Vol. 89, No. 32 / Thursday, February 15, 2024 / Proposed Rules 12149 

252 Id. 

253See Treasury, Investment Adviser Illicit 

Finance Risk Assessment, https://home.treasury.

gov/system/files/136/US-Sectoral-Illicit-FinanceRisk-Assessment-Investment-Advisers. 

254See FBI, ‘‘U.S. Seeks to Recover $1 Billion in 

Largest Kleptocracy Case to Date,’’ (Jul. 20, 2016), 

https://www.fbi.gov/news/stories/us-seeks-torecover-1-billion-in-largest-kleptocracy-case-todate. 

255See Department of Justice, ‘‘Former Partner Of 

Locke Lord LLP Convicted In Manhattan Federal 

Court Of Conspiracy To Commit Money Laundering 

And Bank Fraud In Connection With Scheme To 

Launder $400 Million Of OneCoin Fraud Proceeds,’’ 

(Nov. 21, 2019), https://www.justice.gov/usao-sdny/ 

pr/former-partner-locke-lord-llp-convictedmanhattan-federal-court-conspiracy-commitmoney. 

256 Id. 

257See FinCEN, Trends in Bank Secrecy Act Data: 

Financial Activity by Russian Oligarchs in 2022 

(Dec. 2022), https://www.fincen.gov/sites/default/ 

files/2022-12/FinancialTrendAnalysisRussian

OligarchsFTA_Final.pdf. 

258See Department of the Treasury, Global 

Advisory on Russian Sanctions Evasion Issued 

Jointly by the Multilateral REPO Task Force, p. 3, 

(Mar. 9, 2023), https://home.treasury.gov/system/ 

files/136/REPO_Joint_Advisory.pdf; see also 

FinCEN, Alert on Potential U.S. Commercial Real 

Estate Investments by Sanctioned Russian Elites, 

Oligarchs, and Their Proxies, p. 4, (Jan. 25, 2023), 

https://www.fincen.gov/sites/default/files/shared/ 

FinCENAlertRealEstateFINAL508_1-25-23FINAL

FINAL.pdf. 

259See supra n. 257. 

260See Treasury, ‘‘Remarks by Assistant Secretary 

for Investment Security Paul Rosen at the Second 

Annual CFIUS Conference,’’ (Sept. 14, 2023), 

https://home.treasury.gov/news/press-releases/ 

jy1732. 261See id. 262Committee on Foreign Investment in the 

United States—Annual Report to Congress CY 2022 

(https://home.treasury.gov/system/files/206/ 

CFIUS%20-%20Annual%20Report%20

to%20Congress%20CY%202022_0.pdf), p. 52 263See The Washington Post, ‘‘Scrutiny mounts 

over tech investments from Kremlin-connected 

expatriates,’’ (Dec. 19, 2022), https://www.

washingtonpost.com/technology/2022/12/19/russiaexpatriates-links-probed/; see also The Wall Street 

Journal, ‘‘Government ‘SWAT Team’ Is Reviewing 

Past Startup Deals Tied to Chinese Investors,’’ Jan. 

31, 2021, https://www.wsj.com/articles/governmentswat-team-is-reviewing-past-startup-deals-tied-tochinese-investors-11612094401. 

transnational organized crime 

investigations were supported by BSA 

reporting.252 SAR filing by RIAs and 

ERAs may increase BSA information 

availability to support investigations 

into corruption, fraud, and tax evasion, 

the criminal activities that the Treasury 

risk assessment identified as being most 

prominently tied to illicit proceeds 

moving through investment advisers.253

In particular, information from the 

reporting of suspicious activity and 

recordkeeping by RIAs and ERAs may 

benefit specific types of law 

enforcement financial crime 

investigations, particularly those 

involving the proceeds of foreign 

corruption, along with other 

transnational financial crimes. For 

instance, according to the FBI, in the 

1MDB criminal investigation, at least $1 

billion traceable to the conspiracy was 

laundered through the United States, 

including through private funds advised 

by at least one RIA, and used to 

purchase assets here.254 In another case 

involving the misuse of private funds, 

the defendant established fake private 

equity investment funds in the British 

Virgin Islands to launder approximately 

$400 million in proceeds of a large 

international pyramid fraud scheme 

called OneCoin.255 These examples 

demonstrate that investment advisers 

and the funds they advise have been 

implicated in certain financial crimes, 

and show the scope of potential benefit 

from covering RIAs and ERAs under this 

proposal. 

Further, requiring RIAs and ERAs to 

respond to section 314(a) requests is 

likely to increase the number of positive 

responses for law enforcement when 

trying to locate accounts and 

transactions of persons that may be 

involved in terrorism or money 

laundering activity. In FY 2022, 66 law 

enforcement agencies made 519 requests 

under section 314(a) to over 14,000 

financial institutions, which resulted in 

37,865 positive responses.256 Adding 

RIAs and ERAs to these requests is 

likely to increase positive responses for 

account and transactions information 

and then support further investigations 

using other legal tools. 

(b) Improve Understanding of Priority 

National Security Threats 

Applying AML/CFT obligations to 

RIAs and ERAs may help increase U.S. 

government understanding of two 

priority national security threats: (1) 

funds moving through the U.S. financial 

system that may be associated with 

Russian oligarchs and (2) investment 

activity that may be tied to foreign-state 

efforts to invest in early-stage 

companies developing critical or 

emerging technologies with national 

security implications. 

SAR filings or information collected 

by RIAs and ERAs in the CDD process 

could improve the U.S. government’s 

understanding of how illicit funds 

linked to Russian oligarchs may be 

accessing the U.S. financial system. 

According to FinCEN, BSA data 

provides significant financial 

intelligence about the movement of 

oligarch-related funds and assets with a 

nexus to the United States around the 

time of Russia’s unprovoked military 

invasion of Ukraine, including likely 

attempts by Russian oligarchs and elites 

to conceal their assets, property, and 

financial activities.257 Both U.S. law 

enforcement and press reporting have 

identified instances where Russian 

oligarchs and elites have accessed U.S. 

investment opportunities and the 

financial system through private funds 

or other PIVs, to avoid disclosing their 

identities to other parties.258

However, FinCEN currently receives 

only limited information from 

investment advisers and the securities 

industry in general regarding illicit 

Russian financial activity. For instance, 

of 454 SARs reviewed as part of a 

FinCEN Financial Trend Analysis on 

U.S. financial activity linked to Russian 

oligarchs, only 11, or less than 3 

percent, were filed by the securities and 

futures industry.259

Applying SAR filing, CDD, and other 

recordkeeping requirements to RIAs and 

ERAs may also assist the U.S. 

government in identifying foreignlinked investments in certain U.S. 

companies that could raise national 

security issues. While there are certain 

transactions of which CFIUS must be 

notified, most transactions reviewed by 

CFIUS are filed voluntarily.260 Where 

transactions are not voluntarily 

submitted to CFIUS for review, CFIUS 

agencies must invest staff time and 

resources into identifying those 

transactions and assessing whether to 

request that the parties file with 

CFIUS.261 CFIUS transactions that 

originate through this non-notified 

process remain among the most 

complicated that CFIUS considers, and 

often require mitigation measures to 

address national security risks.262

Assessing the national security 

consequences of investments into earlystage companies developing emerging 

technology can be particularly 

challenging.263 Requiring ERAs, 

particularly venture capital advisers, to 

submit SARs may help CFIUS agencies 

identify transactions where investors 

affiliated with foreign governments are 

attempting to use an investment to 

acquire technology or know-how with 

national security implications. This 

could include providing information 

about transactions CFIUS was unaware 

of, or providing new information about 

investors or other parties to transactions 

CFIUS was already investigating. In 

addition, law enforcement agencies 

involved in CFIUS reviews could use 

section 314(a) information sharing 

authorities to engage venture capital 

advisers or other RIAs or ERAs on 

particular technologies or concerning 

foreign investors. 

(c) Protect the U.S. Financial System 

From Abuse 

Applying AML/CFT obligations to 

RIAs and ERAs will also strengthen the 


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12150 Federal Register / Vol. 89, No. 32 / Thursday, February 15, 2024 / Proposed Rules 

264See FATF (2016), Mutual Evaluation of the 

United States, pp. 255–258, https://www.fatfgafi.org/content/dam/fatf-gafi/mer/MER-UnitedStates-2016.pdf.coredownload.inline.pdf. In 2020, 

the U.S. was re-rated from ‘‘partially compliant’’ to 

‘‘largely compliant’’ on Recommendation 10. See 

FATF (2020), Anti-money laundering and counterterrorist financing measures—United States, 3rd 

Enhanced Follow-up Report & Technical 

Compliance Re-Rating (2020 US FUR), https://

www.fatf-gafi.org/content/dam/fatf-gafi/fur/FollowUp-Report-United-States-March2020.pdf.coredownload.pdf. 

265A ‘‘partially compliant’’ rating is generally not 

considered an acceptable rating for purposes of the 

FATF Follow-Up Process. See FATF (2023), 

Procedures for the FATF Fourth Round of AML/ 

CFT Mutual Evaluations (FATF Fourth Round 

Procedures), pp. 22–23, http://www.fatf-gafi.org/ 

publications/mutualevaluations/documents/4thround-procedures.html. 

266See 2020 US FUR, p. 1, supra n. 264. 

267See FATF Fourth Round Procedures, p. 24, 

supra n. 265. 

268See Julia Morse, The Bankers Blacklist: 

Unofficial Market Enforcement and the Global Fight 

against Illicit Financing (Cornell University Press 

2021), pp. 131–138 (discussing the consequences of 

FATF listing). 

269See Treasury, Investment Adviser Illicit 

Finance Risk Assessment, https://home.treasury.

gov/system/files/136/US-Sectoral-Illicit-FinanceRisk-Assessment-Investment-Advisers. 

270See SEC, Private Fund Statistics, First 

Calendar Quarter 2022, private-funds-statistics2022-q1.pdf (sec.gov). 

ability of the Federal Government and 

private sector to better protect the U.S. 

financial system from being misused for 

illicit finance. First, the proposed rule 

would apply a set of AML/CFT 

obligations to RIAs and ERAs, and those 

investment advisers would be subject to 

enforcement actions for failure to 

comply with those requirements. Those 

investment advisers would be required 

to, as described above, implement AML/ 

CFT programs, conduct due diligence 

on customers, report suspicious activity, 

and keep certain records, among other 

obligations. In doing so, these 

obligations imposed on investment 

advisers would help identify, prevent, 

and deter bad actors from using 

investment advisers to further illicit 

financial activity, as investment 

advisers would be required to obtain 

information from customers to comply 

with these requirements. 

Moreover, the proposed rule will also 

strengthen the ability of RIAs, ERAs, 

and other financial institutions to 

identify and report illicit activity. RIAs 

and ERAs would be able to coordinate 

with broker-dealers and banks to file 

joint SARs, and voluntarily share 

information on illicit activity under 

section 314(b) of the USA PATRIOT 

Act. Reporting by financial institutions 

under the BSA—and their broader 

efforts to implement effective AML/CFT 

programs—are thus fundamental to the 

government’s effort to detect and 

prevent illicit financial activity and to 

protect the integrity of the financial 

system as a whole. 

The proposed rule would also help 

bring the United States into full 

compliance with several international 

AML/CFT standards established by the 

Financial Action Task Force (FATF). In 

the 2016 FATF Mutual Evaluation 

Report (MER) of the United States, the 

United States was rated (and remains 

rated) ‘‘partially compliant’’ on nine of 

the 40 FATF Recommendations.264

These included partially compliant 

ratings on Recommendations 1, 12, and 

20 for the failure to apply AML/CFT 

requirements to investment advisers, 

among other reasons.265

As a result of its MER, the United 

States was put in ‘‘enhanced followup.’’ 266 For countries in enhanced 

follow-up, the FATF can take several 

actions, including ‘‘issuing a formal 

FATF statement to the effect that the 

member jurisdiction is insufficiently in 

compliance with the FATF Standards, 

and recommending appropriate 

action.’’ 267 These statements and other 

actions by the FATF can have material 

consequences on the economy of a 

jurisdiction.268 If the proposed rule is 

finalized, it will assist the U.S. in 

avoiding these consequences and 

strengthening compliance with the 

FATF standards. 

As noted in the Treasury investment 

adviser risk assessment,269 investment 

advisers manage tens of trillions of 

dollars in assets. While some of these 

assets are subject to AML/CFT 

requirements, others are not. For 

instance, RIAs manage approximately 

$20 trillion in private fund assets, and 

as of Q4 2022, this included $284 

billion in AUM owned by non-U.S. 

investors where the RIA did not have 

the information on hand to identify the 

beneficial owner because the beneficial 

interest was held through a chain 

involving one or more third-party 

intermediaries.270 ERAs held 

approximately $5 trillion in AUM in 

private funds. 

4. Assessment of Costs 

This section assesses the potential 

costs to RIAs and ERAs, their clients, 

and government agencies associated 

with the proposed rule. Specifically, 

this Impact Analysis estimates the onetime, upfront costs and recurring 

administrative and maintenance costs 

incurred by RIAs and ERAs to establish 

or modify an existing AML/CFT 

program, which includes conducting 

ongoing CDD, filings SARs, and the 

other requirements of the proposed rule. 

It also estimates costs to customers to 

provide additional information to RIAs 

and ERAs and to the government to 

enforce those requirements. This Impact 

Analysis estimates the incremental costs 

of the proposed regulation over a 10- 

year period. 

Some RIAs and ERAs may have 

reduced costs because they may already 

perform certain AML/CFT functions 

because they are dual registrants or 

affiliated advisers, as described in 

section 2, although, depending on the 

entity and its structure, may not 

currently be required to do so. RIAs that 

are dual registrants or affiliated advisers 

would not be legally required to 

establish a separate AML/CFT program 

for their advisory activities, provided 

that an existing comprehensive AML/ 

CFT program covers all of the entity’s 

legal and regulatory obligations. RIAs 

would also be exempt from having to 

apply most of the proposed 

requirements with respect to the mutual 

funds they advise, as mutual funds have 

their own AML/CFT program 

requirements, must file SARs, and are 

otherwise required to comply with the 

other reporting and recordkeeping 

requirements included in the proposed 

rule. Certain RIAs and ERAs may also 

already collect and verify certain 

information provided by customers via 

contract for a joint customer with 

another financial institution or through 

a voluntary AML/CFT program. 

This section is organized as follows. 

First, it describes and compiles relevant 

cost information associated with these 

activities. Based on this information, it 

estimates the costs likely to be incurred 

by RIAs and ERAs. It then describes 

government implementation costs for 

oversight and enforcement. Finally, it 

summarizes the total costs of the 

proposed regulation. 

(a) Cost Methodology 

This section describes and compiles 

relevant cost information for this Impact 

Analysis. Based on this information, 

FinCEN estimates the typical costs RIAs 

and ERAs are anticipated to incur to 

comply with the requirements of the 

proposed rule. The cost information 

consists of the amount of time (in hours) 

and hourly labor cost of staff involved 

in compliance activities, such as 

developing and updating AML/CFT 

policies and procedures and training 

staff on new requirements, as well as 

costs associated with third party 

software licensing and independent 

testing. The implementation and scope 

of these activities, however, will vary 

widely and depend on a number of 

factors, such as the degree of automation 

of compliance activities and level of 

filer sophistication. 


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271U.S. Bureau of Labor Statistics, May 2022 

National Industry-Specific Occupational 

Employment and Wage Estimates for NAICS 

523000—Securities, Commodity Contracts, and 

Other Financial Investments and Related Activities. 

The adjustment factor for fringe benefits is 

calculated as 1 + ($18.26 per hour in total benefits 

÷ $36.57 per hour in wages and salaries) = 1.50. 

Based on U.S. Bureau of Labor Statistics, Table 4. 

Employer Costs for Employee Compensation for 

Private Industry Workers by Occupational and 

Industry Group—Financial Activities Industry, June 

2022. 

272This is consistent with how FinCEN assesses 

burden hours and costs associated with the 

designation of a BSA officer, whereby the costs are 

assessed individually across other BSA regulatory 

requirements that the designated officer may 

implement. See FinCEN, Agency Information 

Collection Activities; Proposed Renewal; Comment 

Request; Renewal Without Change of Anti-Money 

Laundering Programs for Certain Financial 

Institutions, 85 FR 49418 (Oct. 13, 2020). 

273See U.S. Bureau of Labor Statistics, May 2022 

National Industry-Specific Occupational 

Employment and Wage Estimates for NAICS 

523000—Securities, Commodity Contracts, and 

Other Financial Investments and Related Activities. 

274See U.S. Bureau of Labor Statistics, Table 4. 

Employer Costs for Employee Compensation for 

Private Industry Workers by Occupational and 

Industry Group—Financial Activities Industry, June 

2022. 

275 Government Accountability Office, AntiMoney Laundering: Opportunities Exist to Increase 

Law Enforcement Use of Bank Secrecy Act Reports, 

and Banks’ Costs to Comply with the Act Varied 

(GAO–20–574), (Sept. 2020), https://www.gao.gov/ 

products/gao-20-574 (2020 GAO BSA Report). The 

2020 GAO BSA Report noted that it reported 

software costs separately and did not allocate them 

by requirement because the banks reviewed 

commonly used the same software to meet multiple 

BSA/AML requirements. 

276 Id. 

All costs are reported in 2022 dollars. 

For transparency, all costs in this 

section are reported on an undiscounted 

basis. At the end of this section, costs 

are also reported on a discounted basis 

and the annualized costs of the 

proposed rule are calculated. To 

estimate the value of time associated 

with various compliance activities, 

FinCEN identified roles and 

corresponding staff positions involved 

in reviewing regulatory requirements, 

developing policies and procedures, 

filling out forms, transmitting data, 

conducting training, and maintaining, 

updating, and obtaining written 

approval of AML/CFT programs. 

FinCEN calculated the fully loaded (i.e., 

wages plus benefits, leave, etc.) hourly 

labor cost for each of these roles by 

using the median hourly wage estimated 

by the U.S. Bureau of Labor Statistics 

and computing an additional factor 

accounting for fringe benefits as 

reported in Table 4.1.271 Note, the 

proposed regulation requires, at a 

minimum, that an AML/CFT program 

must designate an AML/CFT 

compliance officer. This Impact 

Analysis does not include the direct 

cost of hiring a full-time equivalent 

AML/CFT compliance officer, which is 

not required by the proposed rule.272

RIAs must already designate a chief 

compliance officer responsible for 

administering policies and procedures 

to comply with the Advisers Act and the 

rules thereunder. In smaller banks and 

broker-dealers, compliance or legal 

officers are often dual-hatted as AML/ 

CFT compliance officers. Similarly, 

FinCEN assumes many RIAs and ERAs 

will appoint or dual hat a compliance or 

legal officer as their AML/CFT 

compliance officer. Therefore, this 

Impact Analysis accounts directly for 

the fully loaded hourly labor costs (i.e., 

salary plus fringe benefits) for each 

compliance activity that would be 

performed by this individual rather than 

by calculating an annual salary, to avoid 

double-counting labor costs for each 

requirement. 

FinCEN estimates that, in general and 

on average, each role would spend 

different amounts of time on each 

portion of the compliance burden 

associated with the proposed rule. 

These assumptions are provided in 

detail below for each compliance 

activity. 

In addition to incurring labor costs, 

RIAs and ERAs will likely need to 

invest in new technology to comply 

with the proposed rule, including 

purchasing software and entering into 

licensing agreements with third party 

vendors. Although financial institutions 

are not required to use software to meet 

their AML/CFT requirements, most 

entities currently subject to the BSA use 

specialized AML/CFT software for this 

purpose. It is challenging to allocate 

technology costs to specific provisions 

of the proposed regulation as technology 

may be used to implement and automate 

several processes.275 This Impact 

Analysis uses estimates derived from a 

2020 Government Accountability Office 

(GAO) report assessing the costs of 

financial institutions to comply with the 

BSA to quantify these technology 

costs.276 GAO documented a wide range 

of compliance costs across a diverse 

group of banks. For estimating 

technology and other costs in this 

Impact Analysis, FinCEN relied on the 

reported values for ‘‘Large Community 

Bank B,’’ for which the costs were 

assessed to be most similar to the costs 

likely to be incurred by the entities 

affected by the proposed regulation. 

FinCEN seeks comment on this 

assumption. Table 4.2 reports selected 

characteristics for this benchmark. 


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Table 4.1 Hourly Labor Costs (in 2022 dollars) 

Median Hourly Adjustment Factor for Fully Loaded 

Occupation Wage273 Fringe Benefits for Hourly Labor 

Private Industry274 Cost 

Chief Executives $115.00 1.50 $172.42 

Financial Managers $100.28 1.50 $150.35 

Compliance Officers $39.66 1.50 $59.46 

New Accounts Clerks $23.17 1.50 $34.74 

Financial Clerk $23.10 1.50 $34.63 

All Employees $47.45 1.50 $71.14 
12152 Federal Register / Vol. 89, No. 32 / Thursday, February 15, 2024 / Proposed Rules 

277 Id at Table 111: Selected Characteristics of 

Large Community Bank B, 2018. 278Bureau of Economic Analysis, National 

Income and Product Accounts Tables, Table 1.1.9. 

Implicit Price Deflators for Gross Domestic Product, 

https://www.bea.gov/itable/national-gdp-andpersonal-income. 

279See 2020 GAO BSA Report at Table 113, supra 

n. 275. 

280See Public Comments, Docket ID FINCEN– 

2014–0003, https://www.regulations.gov/docket/ 

FINCEN-2014-0003/comments. 

Table 4.3 reports the estimated 

compliance costs for specialized AML/ 

CFT software and an independent 

annual audit to test the AML/CFT 

program. The costs are based on values 

for the financial institution benchmark 

described in the previous paragraph 

adjusted for inflation to 2022 dollars 

using the GDP implicit price deflator.278

(b) Compliance Costs to Industry by 

Regulatory Provision 

As described in section 2, the 

regulated universe for purposes of the 

proposed rule consists of RIAs and 

ERAs, which vary in terms of their 

business structure, size, client 

relationships, and degree of existing 

AML/CFT measures already in place. 

Across these advisers, several 

characteristics vary across groups that 

directly impact the magnitude of the 

estimated costs, including the average 

number of employees and the number/ 

type of customer relationships. 

However, the most significant cost 

determinant is the extent of existing 

AML/CFT measures in place—RIAs and 

ERAs with established AML/CFT 

programs in place will likely incur 

relatively fewer costs under the 

proposed rule, while those with few 

AML/CFT measures in place may incur 

potentially more significant costs. 

For the purposes of estimating the 

cost impacts of the proposed rule, this 

Impact Analysis has sub-divided RIAs 

and ERAs into groups based on: (1) 

whether they are dual registrants, 

affiliated advisers, or other advisers (as 

described in section 2); and (2) whether 

they have a significant, moderate, or a 

limited number of AML/CFT measures 

already in place (see Table 2.2). FinCEN 

believes that these sub-divisions are the 

best available method of estimating the 

cost impacts, but FinCEN invites 

comment on whether some other 

method of sub-dividing the industry for 

cost-estimate purposes would be 

preferable. 

i. AML/CFT Program Costs 

RIAs and ERAs subject to the 

proposed rule will need to implement 

and maintain an AML/CFT program that 

meets the minimum requirements of the 

BSA. This includes developing internal 

policies, procedures, and controls to 

comply with the requirements of the 

BSA and address money laundering, 

terrorist financing, and other illicit 

finance risks. Entities that do not 

already have a AML/CFT program in 

place will incur costs to establish such 

a program. In addition, those entities 

will incur costs for maintaining, 

updating, storing, and producing upon 

request the written AML/CFT program. 

Dual registrants or affiliated advisers 

would not have to establish multiple 

AML/CFT programs, provided that an 

existing comprehensive AML/CFT 

program would cover all of the entity’s 

advisory businesses. Entities that 

already have an existing AML/CFT 

program will need to review and/or 

modify their AML/CFT program to 

ensure it complies with the 

requirements of the proposed rule. As 

firms that have an existing AML/CFT 

program are expected to be already 

maintaining, updating, storing, and 

producing upon request the written 

program, FinCEN estimates these firms 

will incur no additional costs beyond 

reviewing/modifying and obtaining 

written approval in the first year after 

the promulgation of the proposed 

regulation. 

Based on public comments on the 

Second Proposed Investment Adviser 

Rule,280 FinCEN estimates it will take 

approximately 120 hours to develop the 

necessary policies and procedures to 

establish an AML/CFT program for 

affiliated or other RIAs and ERAs that 

have a limited number of existing AML/ 

CFT measures in place. FinCEN 

assumes that dually registered entities 

covered by an existing AML/CFT 

program and entities that have a 

significant or moderate number of AML/ 

CFT measures in place would only need 

to update their existing program. 

FinCEN assumes the vast majority of 

entities would develop or update a 

written program within the first year 

after the promulgation of the regulation. 

Once established, FinCEN estimates 

annually it will take approximately 1 


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Table 4.2 Characteristics of Selected Financial Institution Benchmark277 

Characteristic Value (in 2018) 

Financial Institution Tvoe Communitv bank 

Total Assets Under Management $401 million to 4500 million 

Total Noninterest Exnenses $20.1 million to $30 million 

Number ofEmolovees 101 to 500 

Number of New Accounts Ooened 1 001to5000 

Number of SARs filed 51 

Number of CTRs filed 73 

Table 4.3 Estimated Compliance Costs for Independent Testing, Software, and Other 

Third-Party Technology Vendors (in 2022 dollars)279 

Compliance Activity Average Annual 

Cost 

AML/CFT Software Costs $12,400 

Independent Testing $17,000 
Federal Register / Vol. 89, No. 32 / Thursday, February 15, 2024 / Proposed Rules 12153 

281 If an RIA or ERA does not have a board, then 

the program must be approved by the adviser’s sole 

proprietor, general partner, trustee, or other persons 

that have functions similar to a board of directors. 

282FinCEN notes that this estimate reflects the 

time spent by one trustee/director, and that for 

those RIAs or ERAs with a full board of directors, 

there could be incremental cost for each additional 

director. 

283Employees of an investment adviser (and of 

any agent or third-party service provider that is 

charged with administering any portion of the 

AML/CFT program) would have to be trained in 

AML/CFT requirements relevant to their functions 

and to recognize possible signs of money 

laundering, terrorist financing, or other illicit 

finance activity that could arise in the course of 

their duties. 

284The frequency of the investment adviser’s 

training program would be determined by the 

responsibilities of the employees and the extent to 

which their functions would bring them in contact 

with AML/CFT requirements or possible money 

laundering, terrorist financing, or other illicit 

finance activity. 

285The 2020 GAO BSA Report estimated the 

average cost per employee trained ranged between 

$20 and $400 with a mean estimate of 

approximately $116 per employee (measured in 

2022 dollars). For ‘‘Large Community Bank B’’ the 

average estimated cost per employee trained was 

approximately $130 (measured in 2022 dollars). 

286See id. at p. 52. 

hour to maintain and update the 

existing AML/CFT program plus an 

average of 10 minutes to store and 

produce upon request the written AML/ 

CFT program. Table 4.4 reports the 

average costs of establishing and 

maintaining an AML/CFT program. 

In addition, the AML/CFT program 

must be approved in writing by an RIA’s 

or ERA’s board of directors or 

trustees.281 FinCEN estimates that it will 

take approximately 4 hours for a trustee 

or director to review and approve a 

written AML/CFT program the first year 

it is implemented and approximately 2 

hours each subsequent year to review 

the program.282 For this activity, 

FinCEN uses an average hourly wage 

based on the minimum BLS estimate for 

a chief executive as a proxy for a trustee 

of director’s hourly compensation. 

Therefore, using the fully loaded labor 

cost of $172.42 per hour, the estimated 

labor cost for program review and 

approval is approximately $690 for a 

new AML/CFT program and $345 for an 

existing AML/CFT program. FinCEN 

seeks comment on the accuracy of this 

estimation. This represents an upfront 

and recurring cost for RIAs and ERAs 

that do not have an existing AML/CFT 

program, but only a one-time cost for 

RIAs and ERAs that currently have a 

significant or moderate number of AML/ 

CFT measures in place. 

Further, RIAs and ERAs would need 

to implement an AML/CFT training 

program for employees.283 FinCEN 

estimates approximately two-thirds of 

employees would need to be trained on 

the AML/CFT program requirements, 

and assumes that such training could 

occur annually.284 FinCEN assesses that 

RIAs and ERAs with a significant or 

moderate number of AML/CFT 

measures in place are already training 

staff and would not incur additional 

training costs under the proposed rule— 

with the exception of reviewing and 

updating the training materials to 

ensure they cover all of the proposed 

requirements. For RIAs and ERAs with 

a limited number of AML/CFT measures 

in place, FinCEN estimates it would 

initially take 50 hours to develop an 

AML/CFT training program. For entities 

that have an existing AML/CFT training 

program (those entities with a 

significant or moderate number of AML/ 

CFT measures in place), FinCEN 

estimates the one-time burden to review 

and update training materials would be 

10 hours. FinCEN seeks comment on 

these assumptions. Some RIAs and 

ERAs may choose to use a third-party 

consultant or external training event to 

conduct trainings, but this would not be 

required under the proposed rule.285

FinCEN estimates the training would 

take approximately 1 hour for each 

employee, assuming such training 

occurs annually.286 Table 4.5 reports the 

estimated average cost of developing 

and conducting AML/CFT program 

compliance training annually. The 

number of total hours is estimated based 

on the average number of employees for 

each type of RIA or ERA. 


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Table 4.4. Average Cost of Establishing and Updating AML/CFT Program 

Financial Compliance 

Mana2er Officer Total Total Cost Activity % Hourly % Hourly Hours per Entity 

Time Cost Time Cost 

Develop AML/CFT 10% $150.35 90% $59.46 120 $8,226 Program 

Maintain and Update 

Written AML/CFT 10% $150.35 90% $59.46 1.0 $69 

Program 

Store the Written 10% $150.35 90% $59.46 0.833 $6 AML/CFT Program 

Produce Written 

AML/CFT Program 10% $150.35 90% $59.46 0.833 $6 

Uoon Request 
12154 Federal Register / Vol. 89, No. 32 / Thursday, February 15, 2024 / Proposed Rules 

287For annual training, total hours includes 1 

hour per employee. FinCEN assumes approximately 

two-thirds of employees will require training each 

year, to include periodic updates and refresher 

training. Total cost may differ from hourly cost 

multiplied by total hours shown in table due to 

rounding. 

288See 2020 GAO BSA Report at Table 113. 

289Costs are rounded to the nearest thousand 

dollars. 

In addition, all RIAs and ERAs will 

need to implement independent testing 

of their AML/CFT program. As 

described in the previous section, 

FinCEN estimates the average cost of 

such testing will be approximately 

$17,000.288 FinCEN seeks comment on 

this assumption. This reflects a new 

recurring cost for all RIAs and ERAs 

affected by the proposed rule with the 

exception of dually registered entities, 

which are assumed to already use 

independent auditors. Table 4.6 

summarizes the average incremental 

costs per entity of developing or 

maintaining and updating an AML/CFT 

program by type and characteristics of 

each RIA or ERA. 

ii. Customer Due Diligence Costs 

The proposed rule would require 

RIAs and ERAs to implement 

appropriate risk-based procedures for 

conducting ongoing customer due 

diligence. Specifically, RIAs and ERAs 

would be required to (1) understand the 

nature and purpose of customer 

relationships for the purpose of 


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Table 4.5. Average Cost of AML/CFT Program Compliance Training287 

Financial Manae:er Compliance Officer All Employees Total Total Cost Activity %Time Hourly %Time Hourly %Time Hourly Hours1 per Entity2 

Cost Cost Cost 

Develop AML/CFT 

Program Training (one- 10% $150.35 90% $59.46 50 $3,428 

time cost) 

Review and Update 

AML/CFT Program 10% $150.35 90% $59.46 10 $686 

Training (one-time cost) 

Conduct Annual Training 100% $59.46 1 $59 

Costs for Employees to Attend Trainine: 

RIA, Affiliated 100% $71.14 100 $7,087 

RIA, Other 100% $71.14 13 $924 

ERA. Affiliated 100% $71.14 17 $1.209 

ERA, Other 100% $71.14 7 $522 

Table 4.6. Average Cost of AML/CFT Program289 

Investment Adviser Type Upfront Cost Recurring Cost 

(Year 1)1 (Year 2+)1 

Dual Registrant $1,000 $0 

RIA, Affiliated Adviser, with a 

moderate number of AML/CFT $18,000 $17,000 

measures 

RIA, Affiliated Adviser, with a 

limited number of AML/CFT $36,000 $25,000 

measures 

RIA, Other, with a moderate $18,000 $17,000 number of AML/CFT Measures 

RIA, Other, with a limited $30,000 $18,000 number of AML/CFT Measures 

ERA, Affiliated Adviser, with a 

moderate number of AML/CFT $18,000 $17,000 

measures 

ERA, Affiliated Adviser, with a 

limited number of AML/CFT $31,000 $19,000 

measures 

ERA, Other, with a moderate $18,000 $17,000 number of AML/CFT Measures 

ERA, Other, with a limited $30,000 $18,000 number of AML/CFT Measures 
Federal Register / Vol. 89, No. 32 / Thursday, February 15, 2024 / Proposed Rules 12155 

290See 2016 IMCTS Survey, Question 15, supra 

n. 150 

291See, e.g., Managed Funds Association, Sound 

Practices for Hedge Fund Managers (2009), Chapter 

6 (Anti-Money Laundering). 

292See Investment Adviser Association, 

Investment Adviser Industry Snapshot 2023 (Jul. 

2023), p. 26, https://investmentadviser.org/wpcontent/uploads/2023/06/Snapshot2023_Final.pdf. 

293See supra n. 26. 

294See 81 FR at 29448. 

295Current industry practices suggest customers 

are often re-rated for risk purposes. Industry input 

suggests high-risk customers, which make up a 

small portion of many RIAs customer base, are rerated at least annually or when SARs are filed, 

while medium- or low-risk customers are re-rated 

less frequently. 

developing a customer risk profile; and 

(2) conduct ongoing monitoring to 

identify and report suspicious 

transactions and, on a risk basis, to 

maintain and update customer 

information. 

FinCEN assumes that all RIAs and 

ERAs have some existing information on 

their customers and processes to 

identify and conduct additional 

diligence on certain customers. For 

instance, in reviewing the data from the 

2016 IMCTS Survey, in addition to the 

40 percent who had implemented a full 

AML/CFT program consistent with the 

requirements of the Second Proposed 

Investment Adviser Rule, an additional 

36 percent of RIAs implemented some 

AML/CFT measures.290 Based on this 

information as well as industry input 

about some of the voluntary AML/CFT 

measures firms have in place, it is more 

common for firms to develop voluntary 

CDD programs as part of their 

onboarding process as compared to 

other AML/CFT measures.291 Therefore, 

FinCEN assumes that any RIAs and 

ERAs with a moderate number of AML/ 

CFT measures in place will likely not 

need to modify their existing ongoing 

CDD measures, while RIAs and ERAs 

with a limited number of AML/CFT 

measures in place will need to perform 

additional customer review for existing 

customers and at the time of account 

opening for new customers. Since 

investment advisers generally already 

collect some of this information, the 

estimated cost burden is less than 

implementing a fully comprehensive 

customer review at the time of account 

opening, and accounts primarily for the 

costs of modifying existing procedures. 

FinCEN assumes the cost of modifying 

existing CDD procedures will be 

approximately 25 percent of the full cost 

for initial customer review and risk 

profiling. FinCEN seeks comment on 

these assumptions. 

RIAs and ERAs with a limited number 

of AML/CFT measures in place will 

need to collect additional information to 

develop a customer risk profile for legal 

entities and PIVs. Table 4.7 documents 

key assumptions regarding the number 

of customer accounts at affiliated and 

other RIAs and ERAs. ERAs only have 

legal entity customers—therefore, they 

have no natural person customers. 

Based on an analysis of Form ADV 

Filings, as of July 2023, RIAs had 

approximately 51.7 million natural 

person customers, 2.8 million legal 

entity customers, and 100,000 PIV 

accounts. FinCEN estimates the average 

number of customer accounts will grow 

at an annual rate of 9.5 percent—and 

PIV accounts will grow at an annual rate 

of 6 percent—based on average industry 

growth in individual and PIV accounts 

from 2018 to 2023.292

Affiliated and other RIAs and ERAs 

with a limited number of existing AML/ 

CFT measures will also need to collect 

and review customer information to 

implement risk-based procedures for 

conducting ongoing CDD. As described 

above, FinCEN estimates the costs 

associated with modifying existing 

customer diligence information and 

procedures will be significantly less 

than the full cost for developing the 

initial customer risk profile. In this 

Impact Analysis, FinCEN estimates the 

average cost of collecting additional 

information for new accounts to develop 

a customer risk profile will be 

approximately 25 percent of the total 

estimated cost of this information 

collection (30 minutes per natural 

person or 1 hour per legal entity).294

Thus, the estimated cost of information 

collection is approximately 7.5 minutes 

per natural person or 15 minutes per 

legal entity. For this activity, FinCEN 

uses an average hourly labor cost of 

$34.76 for a new account clerk. 

Therefore, the estimated labor cost to 

develop a risk profile is approximately 

$4.34 for per natural person and $8.68 

per legal entity. In addition to new 

accounts, FinCEN anticipates that RIAs 

and ERAs will need to conduct this 

information collection for existing 

accounts. FinCEN estimates this 

information collection for existing 

accounts will be conducted over the 

first three years after the promulgation 

of the proposed regulation.295 FinCEN 

seeks comment on the accuracy of this 

estimate. The costs to build and 

maintain technology and information 

systems to house this customer 

information is not reflected here but is 

included in the annual costs of software 

licensing described elsewhere in this 

Impact Analysis. These costs are 

multiplied by the average number of 

natural persons, legal entities, and PIV 

accounts, respectively, for each RIA and 

ERA. 

In addition to the costs to the adviser, 

this requirement likely represents an 

information collection burden for legal 

entities that hold accounts with 

investment advisers. FinCEN estimates 

it would take between approximately 15 

and 30 minutes, or an average of 22.5 

minutes, for legal entity customers to 

provide any additional data required for 

this information collection. Since these 


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Table 4.7 Average Number of Customer Relationships (as of July 2023)293 

Ret!istered Investment Advisers Exemot Reoortin2 Advisers 

Dual Affiliated Other Dual Affiliated Other Re2istrant Re2istrant 

Avg. NumberofNatural 43,450 10,476 682 0 0 0 Person Relationships 

Avg. NumberofLegal 919 254 142 4 63 5 Entity Relationships 

Avg. Number of PIV 14 18 4 0 0 0 Accounts 
12156 Federal Register / Vol. 89, No. 32 / Thursday, February 15, 2024 / Proposed Rules 

296This estimate is based on a populationweighted average of $32.79, which represents the 

median salary for all employees in NAICS 522, 523, 

and 525, multiplied by an adjustment factor for 

fringe benefits of 1.50. 

297This category includes dual registrants that are 

applying a significant number of AML/CFT 

measures and affiliated advisers that are applying 

a moderate number of AML/CFT measures. 298Costs are rounded to the nearest thousand 

dollars for RIAs and to the nearest hundred dollars 

for ERAs. 

299 Dual registrants were assessed to be the 

population of investment advisers most likely to file 

SARs and best represent an investment adviser 

subject to SAR filing obligations. 

300See FinCEN, Proposed Renewal: Reports by 

Financial Institutions of Suspicious Transactions, 

85 FR 31598 (May 26, 2020). 

301See id. 

customers are not employees of the 

regulated entities, but rather other 

investment advisers in most cases, 

FinCEN uses an hourly burden estimate 

of $49.17 that is representative of the 

customer base.296 Therefore, the average 

information collection cost is 

approximately $18.44 per customer. 

This average cost is multiplied by the 

number of legal entity customers for 

each RIA or ERA. 

Table 4.8 summarizes the average 

ongoing CDD costs per entity by type 

and characteristics of each RIA or ERA. 

The relatively higher costs in the first 

three years reflects the compliance 

burden associated with data collection 

activities to develop a customer risk 

profile for existing customer accounts 

and new customer accounts, while the 

ongoing costs after 2026 reflect the 

burden associated with data collection 

for only new customer accounts. 

iii. Suspicious Activity Report Filing 

Costs 

As part of their AML/CFT program, 

RIAs and ERAs will be required to 

conduct ongoing monitoring of 

customers and file SARs. FinCEN 

assumes that RIAs and ERAs that are 

dually registered as a broker-dealer or 

bank are already submitting SARs. The 

extent of SAR filing by affiliated or 

other advisers is uncertain. Therefore, 

FinCEN assumes that all RIAs and ERAs 

that are not dually registered as a 

broker-dealer or bank would have to 

begin filing SARs due to the proposed 

regulation. FinCEN seeks comment on 

this assumption. To the extent that some 

RIAs and ERAs in this category are 

already filing SARs, this may 

overestimate the costs of the proposed 

regulation. 

Based on an analysis of SAR filings by 

dual registrants between 2018 and 2022, 

FinCEN estimates that RIAs will file an 

average of approximately 60 SARs per 

year.299 Since no information was 

available for ERAs, FinCEN applies the 

same estimate of 60 SARs per year. 

FinCEN seeks comment on this 

assumption. Based on the analysis, 

FinCEN estimates the following 

regarding the SARs investment advisers 

would file: 

• 51 (85 percent) would be initial 

SARs and 9 (15 percent) would be 

continuing SARs. 

• 51 (85 percent) would be discrete 

SARs and 9 (15 percent) would be batch 

SARs. 

• 55 (92 percent) would be standard 

SARs and 5 (8 percent) would be 

extended SARs. 

Without a detailed breakdown, 

FinCEN assumes the distribution of 

SARs is proportionally distributed 

across each category as discussed below. 

Each type of filing is expected to have 

a different reporting burden. 

In addition, the estimated costs of 

ongoing monitoring in (Table 4.8 above) 

include the review of alerts that do not 

result in a SAR being filed. FinCEN 

previously estimated that approximately 

42 percent of suspicious activity alerts 

were turned into SARs.300 Therefore, for 

each case filed as a SAR, approximately 

1.4 cases were not filed. Table 4.9 

reports the average cost of determining 

whether a SAR is needed and filing 

SARs. While the burden estimates are 

based on FinCEN’s previous analysis,301

in this Impact Analysis the burden is 

attributed primarily to a compliance 

officer rather than a financial clerk or 

teller due to the smaller size of RIAs and 

ERAs relative to banks and to avoid 

potentially underestimating the average 

hourly labor costs associated with these 

activities. To the extent that a portion of 

this work can be completed by clerical 

staff that report to a compliance officer, 

this may slightly overestimate certain 

costs. FinCEN seeks comment on this 

assumption. The licensing cost for 

transaction monitoring software is not 

reflected here but is included in the 

software costs described elsewhere in 

this Impact Analysis. 


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Table 4.8. Average Cost of Ongoing Customer Due Diligence 

RIAs and ERAs RIAs, Affiliated, RIAs, Other, with ERAs, ERAs, Other, with a Significant with a Limited a Limited Affiliated, with with a Limited 

Year or Moderate Number of Number of a Limited Number of Number of AML/CFT AML/CFT Number of AML/CFT AML/CFT Measures298 Measures2 AML/CFT Measures2 

Measures297 Measures2 

2024 $0 $8,000 $2,000 $400 $300 

2025 $0 $11,000 $2,000 $500 $300 

2026 $0 $11,000 $2,000 $500 $300 

2027 $0 $3,000 $1,000 $300 $200 

2028 $0 $3,000 $1,000 $300 $200 

2029 $0 $4,000 $1,000 $300 $200 

2030 $0 $4,000 $1,000 $300 $200 

2031 $0 $4,000 $1,000 $300 $200 

2032 $0 $5,000 $1,000 $300 $200 

2033 $0 $5,000 $1,000 $300 $200 
Federal Register / Vol. 89, No. 32 / Thursday, February 15, 2024 / Proposed Rules 12157 

302 Information on the number and distribution of 

SARs by type of filing based on an analysis of SAR 

filings. Information on the number of alerts and 

burden estimates based on FinCEN, Proposed 

Renewal: Reports by Financial Institutions of 

Suspicious Transactions. 85 FR 31598 (May 26, 

2020). 

Figure 4.1 illustrates FinCEN’s 

estimates regarding the average number 

and distribution of SARs, including for 

suspicious activity alerts that do not 

result in a SAR being filed, as well as 

the hourly recordkeeping, reporting, and 

storing burden estimates by type of 

filing. 

Based on this information, the average 

annual cost of SAR filings is estimated 

to be approximately $10,000 per entity 

for any RIA or ERA that does not have 

a full AML/CFT program in place. No 

incremental costs are estimated for dual 

registrants because those entities are 

already submitting SARs in the baseline. 


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Table 4.9. Weighted Average Hourly Cost of Reviewing Alerts and Drafting, Writing, and 

Submitting a Suspicious Activity Report 

Financial Mana2er Compliance Officer Weighted 

Activity %Time Hourly %Time Hourly Average 

Cost Cost Hourly Cost 

Determining Whether a 10% $150.35 90% $59.46 $68.55 SAR is Merited 

Documenting Cases not 1% $150.35 99% $59.46 $60.37 Submitted as SARs 

Drafting, Writing, and 

Submitting SARs 1% $150.35 99% $59.46 $60.37 

(standard content) 

Drafting, Writing, and 

Submitting SARs 5% $150.35 95% $59.46 $64.01 

(extended content) 

Storing SARs and 

Supporting 0% $150.35 100% $59.46 $59.46 

Documentation 

Figure 4.1. Average Number and Distribution of Suspicious Activity Alerts and Estimated 

Burden by Type of Filing per Investment Adviser3°2 

Alerts: 

143(100%) 

..... ----+! Continuing SARs / Batch: 

1.35 (0.95%) 

'"--!>-I Continuing SARs: 

9(6.3%) 

Continuing SARs / Discrete: -----t>t 7.65 (5.36%) 
12158 Federal Register / Vol. 89, No. 32 / Thursday, February 15, 2024 / Proposed Rules 

303See 2020 GAO BSA Report at Table 113. 304See 31 CFR 1020.410(a), (e); see also 31 CFR 

1010.410(f). 

305FinCEN, Proposed Renewal: Renewal Without 

Change of Regulations Requiring Records to be 

Made and Retained by Financial Institutions, 

Banks, and Providers and Sellers of Prepaid Access, 

85 FR 84105 (Dec. 23, 2020). 

306FinCEN, Special Information Sharing 

Procedures to Deter Money Laundering and 

Terrorist Activity, Final Rule, 67 FR 60579 (Sept. 

26, 2002). 

307FinCEN, Proposed Renewal: Renewal Without 

Change on Information Sharing Between 

Government Agencies and Financial Institutions, 87 

FR 41186 (Jul. 11, 2022). 

308 Id. 

309FinCEN, Proposed Renewal: Due Diligence 

Programs for Correspondent Accounts for Foreign 

Financial Institutions and for Private Banking 

Accounts, 85 FR 61104 (Sep. 9, 2020). 

iv. Other Compliance Costs 

As discussed above, there are certain 

costs associated with the proposed rule 

that may be spread across several of the 

proposed requirements. It is challenging 

to allocate those expenditures to 

specific provisions of the proposed rule 

described above. These include software 

licensing and general recordkeeping 

costs. 

Dual registrants, affiliated, and other 

RIAs and ERAs that already apply a 

significant or moderate number of AML/ 

CFT measures are expected to already 

be using specialized AML/CFT software 

as part of their AML/CFT program. 

Affiliated or non-affiliated entities that 

have a limited number of AML/CFT 

measures in place will likely have to 

invest in this type of software to 

implement an AML/CFT program. 

FinCEN estimates that annual licensing 

fees for specialized AML/CFT software 

will be approximately $12,400.303

The proposed rule requires RIAs and 

ERAs to comply with certain 

recordkeeping obligations (under the 

Recordkeeping Rule and Travel 

Rule),304 including recording and 

maintaining originator and beneficiary 

information for certain transactions. 

FinCEN assumes that RIAs and ERAs 

that are dually registered as a brokerdealer or as a bank with a significant 

number of AML/CFT measures in place 

are already in compliance with the 

recordkeeping requirements, while 

other RIAs and ERAs would have to take 

additional steps to comply with these 

measures. FinCEN estimates the annual 

recordkeeping burden per RIA or ERA 

for these requirements is 50 hours.305

Table 4.10 summarizes the average cost 

associated with these recordkeeping 

requirements. 

In addition, the proposed rule 

requires RIAs and ERAs to implement 

the information sharing procedures 

contained in section 314(a) of the USA 

PATRIOT Act.306 Upon receiving an 

information request from FinCEN, an 

RIA or ERA would be required to search 

its records to determine whether it 

maintains or has maintained any 

account or engaged in any transaction 

with an individual, entity, or 

organization named in the request. 

Covered financial institutions are 

instructed not to reply to the 314(a) 

request if a search does not uncover any 

matching of accounts or transactions. 

Currently, all 314(a) responses are filed 

using automated technology.307 FinCEN 

assumes that dually registered entities 

with a significant number of AML/CFT 

measures in place are already 

complying with these requirements, 

while most other RIAs and ERAs will 

likely incur additional reporting costs to 

comply with these measures. FinCEN 

estimates the average burden will be 

approximately 4 minutes per 314(a) 

request for 365 reports per year per 

investment adviser, an average of one 

request per calendar day.308 Therefore, 

the estimated burden is approximately 

24 hours (4 minutes × 365 reports = 

1,460 minutes) per year per investment 

adviser. The information technology 

costs associated with 314(a) requests are 

assumed to be included within the 

overall software costs. Table 4.11 

summarizes the information collection 

costs for 314(a) measures. 

As ‘‘covered financial institutions’’ 

under FinCEN regulations, RIAs and 

ERAs will also be required to maintain 

due diligence measures that include 

policies, procedures, and controls that 

are reasonably designed to detect and 

report any known or suspected money 

laundering or other suspicious activity 

conducted through or involving any 

correspondent or private banking 

account that is established, maintained, 

administered, or managed in the United 

States. FinCEN estimates the annual 

hourly burden of maintaining and 

updating the due diligence program for 

foreign correspondent accounts and 

private banking accounts would be 

approximately two hours for each RIA 

and ERA—one hour to maintain and 

update the program and one hour to 

obtain the approval of senior 

management.309 Information technology 

costs associated with this requirement 

are included within the overall software 

costs. Table 4.12 summarizes the cost 

burden associated with special due 

diligence measures. 


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Table 4.10. Average Cost Associated with AML/CFT Recordkeeping Requirements 

Financial Mana2er Comuliance Officer Financial Clerk Total Total Cost Activity %Time Hourly %Time Hourly %Time Hourly Hours per Entity Cost Cost Cost 

Creating and Maintaining 5% $150.35 15% $59.46 80% $34.63 50 $2,207 Records 

Table 4.11. Average Cost for Section 314(a) Measures 

Financial Mana2er Comuliance Officer Financial Clerk Total Total Cost Activity %Time Hourly %Time Hourly %Time Hourly Hours per Entity Cost Cost Cost 

Research and Respond to 10% $150.35 60% $59.46 30% $34.63 24.33 $1,487 314(a) Reauests 
Federal Register / Vol. 89, No. 32 / Thursday, February 15, 2024 / Proposed Rules 12159 

310FinCEN, Final Rule: Special Information 

Sharing Procedures to Deter Money Laundering and 

Terrorist Activity. 67 FR 60579 (Sept. 26, 2002). 

311These foreign financial institutions and 

jurisdictions are: (1) Bank of Dandong, (2) 

Commercial Bank of Syria, including Syrian 

Lebanese Commercial Bank, (3) FBME Bank Ltd., 

(4) Islamic Republic of Iran, and (5) Democratic 

People’s Republic of North Korea. See FinCEN, 

Special Measures for Jurisdictions, Financial 

Institutions, or International Transactions of 

Primary Money Laundering Concern, https://www.

fincen.gov/resources/statutes-and-regulations/311- 

and-9714-special-measures, 312See, e.g., FinCEN, Proposed Renewal: 

Imposition of a Special Measure against Bank of 

Dandong as a Financial Institution of Primary 

Money Laundering Concern, 88 FR 48285 (Jul. 26, 

2023). 

313FinCEN, Proposed Renewal: Renewal Without 

Change of the Bank Secrecy Act Reports of 

Transactions in Currency Regulations at 31 CFR 

1010.310 Through 1010.314, 31 CFR 1021.311, and 

31 CFR 1021.313, and FinCEN Report 112— 

Currency Transaction Report, 85 FR 29022 (July 13, 

2020). 

314 In the Second Proposed Investment Adviser 

Rule, FinCEN estimated each investment adviser 

would file an average of one CTR per year, at a time 

cost of one hour per CTR. Incorporating these costs 

in the model would change the total hour and 

dollar burden by less than one percent. 

Under the proposed rule, RIAs and 

ERAs must also comply with special 

measures procedures and prohibitions 

contained in section 311 of the USA 

PATRIOT Act.310 Section 9714 of the 

Combatting Russian Money Laundering 

Act allows for similar special measures 

in the context of illicit Russian finance. 

Sections 311 and 9714 grant FinCEN the 

authority, upon finding that reasonable 

grounds exist for concluding that a 

foreign jurisdiction, financial 

institution, class of transactions, or type 

of account is of ‘‘primary money 

laundering concern,’’ to require 

domestic financial institutions and 

financial agencies to take one or more 

‘‘special measures,’’ which impose 

additional recordkeeping, information 

collection, and reporting requirements 

on covered U.S. financial institutions. 

They also allow FinCEN to impose 

prohibitions or conditions on the 

opening or maintenance of certain 

correspondent accounts. Currently, such 

prohibitions are in place for three 

foreign financial institutions and two 

foreign jurisdictions, all imposed under 

section 311.311 These special measures 

require financial institutions to provide 

notice to foreign account holders and 

document compliance with the statute. 

FinCEN assumes that dually registered 

RIAs and ERAs with a significant 

number of AML/CFT measures in place 

are already complying with these 

requirements, while most other RIAs 

and ERAs will likely incur additional 

costs to comply with these special 

measures. FinCEN estimates the average 

burden will be approximately 1 hour 

per special measure.312 Therefore, the 

estimated burden is approximately 5 

hours. FinCEN seeks comment on this 

assumption. Table 4.13 summarizes the 

average cost for implementation section 

311 special measures. 

Finally, in addition to filing SARs, 

financial institutions must file CTRs 

under the BSA’s reporting obligations. 

Currently, all investment advisers are 

required to report transactions in 

currency over $10,000 on Form 8300, 

which is being replaced by the CTR.313

Therefore, FinCEN estimates that the 

incremental cost for RIAs and ERAs to 

use the CTR is de minimis.314 FinCEN 

seeks comment on this assumption. 

Based on this information, the average 

annual cost of other compliance 

measures not characterized elsewhere in 

this regulatory impact analysis are 

estimated to be approximately $4,000 

for affiliated or other RIAs and ERAs 

with a moderate number of AML/CFT 

measures already in place and 

approximately $16,000 for affiliated or 

other RIAs and ERAs with a limited 

number of AML/CFT measures already 

in place. 

(c) Costs to Government 

This section describes the costs to 

Federal Government agencies to 

implement and enforce the proposed 

regulation. 

i. Costs to FinCEN 

Administering the proposed 

regulation is estimated to entail costs to 

FinCEN as well as other government 

agencies. In terms of technology and IT 

costs, the proposed rule does not create 

new kinds or requirements or new 

reporting forms, and instead applies 

existing SAR and CTR filing obligations 

to investment advisers. As a result, 

technology and IT costs are estimated to 

be small but are included in this 

analysis for comprehensiveness. The 

primary costs that FinCEN and other 

government agencies are expected to 

incur with respect to administering this 

proposed rule relate to personnel costs 

for enforcing compliance with the 

regulation, as well as providing 

guidance and engaging in outreach, 

training, investigations, and policy 

development in support of this 

regulation. FinCEN estimates the total 

annual personnel cost relating to 

administering this proposed rule to be 


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Table 4.12. Average Cost Associated with Updating and Maintaining Special Due 

Diligence Measures 

Trustee or Director Financial Mana2er Compliance Officer Total Total Cost Activity %Time Hourly %Time Hourly %Time Hourly Hours per Entity Cost Cost Cost 

Maintain and Update 

Special Due Diligence 10% $150.35 90% $59.46 1 $68.55 

Program 

Obtain Written Annroval 100% $172.42 1 $172.42 

Table 4.13. Average Cost for Section 311 Special Measures 

Financial Mana2er Comoliance Officer Financial Clerk Total Total Cost Activity %Time Hourly %Time Hourly %Time Hourly Hours per Entity Cost Cost Cost 

Section 311 Special 10% $150.35 60% $59.46 30% $34.63 5 $1,222 Measures 
12160 Federal Register / Vol. 89, No. 32 / Thursday, February 15, 2024 / Proposed Rules 

315U.S. Office of Personnel Management, Salary 

Table 2023 Incorporating the 4.1 percent General 

Schedule Increase and a Locality Payment of 32.49 

percent for the Washington-Baltimore-Arlington 

area. Rounded to three significant digits. 

316The Department of Health and Human 

Services recommends using an adjustment factor of 

2 to account for fringe benefits and overhead when 

agency-specific financial data are unavailable. 

(HHS, Guidelines for Regulatory Impact Analysis, 

2016, p. 30). 

317See SEC, FY 2023 Agency Financial Report, p. 

32, https://www.sec.gov/files/sec-2023-agencyfinancial-report.pdf#chairmessage. 

318This estimate is based on the midpoint salary 

for a GS–15 equivalent of $153,600 multiplied by 

the locality pay rate of 32.49 percent for 

Washington, DC. 

319See SEC, FY 2024 Congressional Budget 

Justification, p. 22, https://www.sec.gov/files/fy2024-congressional-budget-justification_final-3- 

10.pdf. 

$7.5 million, as reflected in Table 4.14, 

with continuing recurring annual costs 

of roughly the same magnitude for 

ongoing outreach, policy, and 

enforcement activities thereafter. 

In addition, FinCEN estimates the 

average technology and IT costs 

associated with receiving SAR filings 

will be approximately $0.10 per SAR. 

Based on an average estimate of 60 

SARs per entity per year, FinCEN 

anticipates it will receive approximately 

1,245,420 SARs each year from RIAs 

and ERAs that do not currently have 

most AML/CFT measures in place. This 

estimate excludes SAR filings for dually 

registered entities because those entities 

are expected to be submitting SARs in 

the baseline. Therefore, the incremental 

technology and IT costs to FinCEN 

associated with the SAR filing 

requirement are estimated to be 

approximately $125,000 per year. 

Enforcement of this regulation will 

involve coordination with law 

enforcement agencies, which will incur 

costs (time and resources) while 

conducting investigations into noncompliance. FinCEN does not currently 

propose an estimate of these costs. 

ii. Costs to SEC 

The SEC is also estimated to incur 

costs, primarily relating to additional 

staff needed to examine for compliance 

with the requirements of the proposed 

rule, and to provide any needed 

regulatory guidance or analysis. Costs 

associated with implementing the 

proposed rule are expected to primarily 

affect the Division of Investment 

Management and the Division of 

Examinations, though certain potential 

costs may also be incurred by the 

Division of Enforcement. In addition, as 

the SEC receives a significant portion of 

its revenue from fees on registrants and 

other market participants, many of these 

costs would ultimately be paid for 

through those fees.317

The SEC’s Division of Investment 

Management administers the Advisers 

Act and develops regulatory policy for 

investment advisers, among other 

responsibilities. The Division of 

Investment Management may require 

two additional staff to provide 

regulatory guidance or analysis related 

to the proposed rule. The average salary 

for a GS–15 equivalent is approximately 

$203,500 based on the SEC’s SK series 

adjusted for the locality pay area of 

Washington, DC.318 Applying an 

adjustment factor of 2.0 for fringe 

benefits and overhead yields an 

estimated fully loaded labor cost of 

approximately $407,000. Therefore, 

FinCEN estimates the total annual 

personnel cost to the SEC relating to 

administering this proposed rule to be 

approximately $814,000. 

RIAs are subject to examination by 

SEC staff in the SEC’s Division of 

Examinations. Within the Division of 

Examinations, the Investment Adviser/ 

Investment Company (IA/IC) 

Examination Program completed more 

than 2,300 examinations of SECregistered investment advisers in 

FY22.319 The SEC maintains authority 

to examine ERAs as well. While the 

Division of Examinations may conduct 

examinations for compliance with the 

requirements of the proposed rule 

within its existing examination 

program, this may require additional 

examination staff. FinCEN does not 

currently have an estimate of the 

additional costs the SEC’s Division of 

Examinations may incur for these 

activities. 

(d) Summary of Costs 

This section reports the total costs of 

the proposed rule on a per entity basis 


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Table 4.14 Estimated Personnel Costs to FinCEN Related to Administering the Proposed 

Rule (in 2022 dollars) 

Adjustment Factor 

Number of Average for Fringe Benefits Fully Loaded 

Division Grade Employees Annual and Overhead for Hourly Labor 

Salary315 Federal Cost 

Emolovees316 

Policy (PD) GS-12 1 $108 000 2.0 $217 000 

GS-13 1 $129 000 2.0 $258 000 

Global Investigations GS-13 2 $129 000 2.0 $258 000 

(GID) GS-14 1 $152 000 2.0 $304 000 

Counsel (OCC) GS-15 2 $184 000 2.0 $367 000 

Strategic Operations GS-13 4 $129 000 2.0 $258 000 

(SOD) GS-14 1 $152 000 2.0 $304 000 

GS-12 10 $108 000 2.0 $217 000 

Enforcement and GS-13 4 $129 000 2.0 $258 000 

Compliance (ECD) GS-14 2 $152 000 2.0 $304 000 

GS-15 1 $184 000 2.0 $367 000 

Total 29 $3,770,000 $7,540,000 
Federal Register / Vol. 89, No. 32 / Thursday, February 15, 2024 / Proposed Rules 12161 

320For Tables 4.16 to 4.37, costs are rounded to 

the nearest thousand dollars or two significant 

digits. 

and in aggregate, by type and 

characteristics of each RIA or ERA. As 

described in ection 2, the regulated 

universe consists of RIAs and ERAs that 

vary in terms of business structure, 

number of employees, number of 

accounts, and the extent that existing 

AML/CFT measures are being applied 

(e.g. significant, moderate, limited). 

Table 4.15 summarizes the total number 

of entities by type and characteristics of 

each RIA and ERA. 

i. Average Cost per Private Entity and 

Total Costs by Category of Investment 

Adviser 

This section describes the estimated 

average cost per entity and total costs by 

type and characteristics of each RIA and 

ERA. The average costs per RIA and 

ERA are multiplied by the number of 

impacted entities to estimate the 

aggregate cost burden of the proposed 

rule, by category of RIA and ERA. Table 

4.16 summarizes the estimated costs for 

RIAs and ERAs that are dually 

registered as a broker-dealer or a bank 

with a significant number of AML/CFT 

measures in place. The estimated costs 

for dually registered entities are 

minimal because most firms are 

expected to have an existing AML/CFT 

program in place. The relatively small 

incremental costs are associated with 

RIAs and ERAs maintaining and 

updating a written AML/CFT program 

and reviewing and updating AML/CFT 

training to ensure they cover the 

activities of all RIAs and ERAs and meet 

the requirements of the BSA. 

Table 4.17. summarizes the estimated 

costs for affiliated RIAs with a moderate 

number of AML/CFT measures in place. 

Table 4.18. summarizes the estimated 

costs for affiliated RIAs with a limited 

number of AML/CFT measures in place. 


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Table 4.15. Number of Affected Investment Advisers by Type 

Baseline Registered Investment Advisers Exempt Reporting Advisers 

AML/CFT Dual Dual Total 

Measures Registrant Affiliated Other Registrant Affiliated Other 

Significant 436 0 0 44 0 0 480 

Moderate 0 1,727 4,307 0 216 1,877 8,127 

Limited 0 576 8,345 0 72 3,637 12,630 

Table 4.16. Total Costs for Dually Registered Entities with a Significant Number of 

AML/CFT Measures in Place, by Year (in 2022 dollars)320 

Year Number of Average Cost Total Costs 

Entities oerEntitv ($M) 

2024 480 $1000 $0.4 

2025-2033 480 $0 $0.0 

Table 4.17. Total Costs for RIAs, Affiliated, with a Moderate Number of AML/CFT 

Measures in Place, by Year (in 2022 dollars) 

Year Number of Average Cost Total Costs 

Entities per Entity ($M) 

2024 1 727 $32.000 $55.7 

2025-2033 1 727 $31,000 $53.8 
12162 Federal Register / Vol. 89, No. 32 / Thursday, February 15, 2024 / Proposed Rules 

Table 4.19. summarizes the estimated 

costs for other RIAs with a moderate 

number of AML/CFT measures in place. 

Table 4.20. summarizes the estimated 

costs for other RIAs with a limited 

number of AML/CFT measures in place. 

Table 4.21. summarizes the estimated 

costs for ERAs, affiliated, with a 

moderate number of AML/CFT 

measures in place. 


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Table 4.18. Costs for RIAs, Afrdiated, with a Limited Number of AML/CFT Measures in 

Place, by Year (in 2022 dollars) 

Year Number of Average Cost Total Costs 

Entities per Entity ($M) 

2024 576 $76,000 $43.8 

2025 576 $62,000 $35.9 

2026 576 $63,000 $36.0 

2027 576 $55,000 $31.5 

2028 576 $55,000 $31.7 

2029 576 $55,000 $31.9 

2030 576 $56,000 $32.1 

2031 576 $56,000 $32.3 

2032 576 $57,000 $32.6 

2033 576 $57,000 $32.9 

Table 4.19. Costs for RIAs, Other, with a Moderate Number of AML/CFT Measures in 

Place, by Year (in 2022 dollars) 

Year Number of Average Cost Total Costs 

Entities per Entity ($M) 

2024 4 307 $32 000 $139.0 

2025-2033 4,307 $31,000 $134.2 

Table 4.20. Costs for RIAs, Other, with a Limited Number of AML/CFT Measures in 

Place, by Year (in 2022 dollars) 

Year Number of Average Cost Total Costs 

Entities per Entity ($M) 

2024 8,345 $61,000 $510.3 

2025 8,345 $47,000 $394.3 

2026 8,345 $47,000 $394.8 

2027 8,345 $46,000 $383.7 

2028 8,345 $46,000 $384.3 

2029 8,345 $46,000 $385.0 

2030 8,345 $46,000 $385.7 

2031 8,345 $46,000 $386.6 

2032 8,345 $46,000 $387.4 

2033 8,345 $47,000 $388.4 
Federal Register / Vol. 89, No. 32 / Thursday, February 15, 2024 / Proposed Rules 12163 

Table 4.22. summarizes the estimated 

costs for ERAs that are affiliated with a 

bank or broker-dealer with a moderate 

number of AML/CFT measures in place. 

Table 4.23. summarizes the estimated 

costs for other ERAs with a moderate 

number of AML/CFT measures in place. 

Table 4.24. summarizes the estimated 

costs for other ERAs with a limited 

number of AML/CFT measures in place. 

ii. Estimated Burden of the Proposed 

Rule to Industry 

Table 4.25 summarizes the total costs 

of the proposed rule on an 

undiscounted basis. 


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Table 4.21. Total Costs for ERAs, Affiliated, with a Moderate Number AML/CFT 

Measures in Place bv Year (in 2022 dollars) ' 

Year Number of Average Cost Total Costs 

Entities per Entity ($M) 

2024 216 $32,000 $7.0 

2025-2033 216 $31,000 $6.7 

Table 4.22. Costs for ERAs, Atrdiated, with a Limited Number of AML/CFT Measures in 

Place, by Year (in 2022 dollars) 

Year Number of Average Cost Total Costs 

Entities perEntitv ($M) 

2024 72 $59,000 $4.2 

2025-2033 72 $46,000 $3.3 

Table 4.23. Costs for ERAs, Other, with a Moderate Number of AML/CFT Measures in 

Place, by Year (in 2022 dollars) 

Year Number of Average Cost Total Costs 

Entities per Entitv ($M) 

2024 1877 $32,000 $60.6 

2025-2033 1,877 $31,000 $58.5 

Table 4.24. Costs for ERAs, Other, with a Limited Number of AML/CFT Measures in 

Place, by Year (in 2022 dollars) 

Year Number of Average Cost Total Costs 

Entities per Entity ($M) 

2024 3 637 $57.000 $206.7 

2025-2033 3,637 $45,000 $163.0 
12164 Federal Register / Vol. 89, No. 32 / Thursday, February 15, 2024 / Proposed Rules 

321U.S. Office of Management and Budget, 

Circular A–4, Nov. 9, 2023. 

322 Id. 

Table 4.26 summarizes the total costs 

of the proposed rule by entity and 

business structure for dual registrants, 

affiliated advisers, and other advisers on 

an undiscounted basis. 

iii. Discounted Estimated Burden of the 

Proposed Rule 

In regulatory impact analyses, 

discount rates are used to account for 

differences in the timing of the 

estimated benefits and costs. Benefits 

and costs that accrue further in the 

future are more heavily discounted than 

those impacts that occur today. 

Discounting reflects individuals’ general 

preference to receive benefits sooner 

rather than later (and defer costs) and 

recognizes that costs incurred today are 

more expensive than future costs 

because businesses must forgo an 

expected rate of return on investment of 

that capital.321 OMB recommends using 

a discount rate of 2 percent.322 This 

represents the real (inflation-adjusted) 

rate of return on long-term U.S. 

government debt over the last 30 years, 

calculated between 1993 and 2022, and 

is a reasonable approximation of the 

social rate of time preference. 

Table 4.27 summarizes the total costs 

of the proposed rule using a 2 percent 

discount rate. As shown in the table, 

RIAs account for approximately 72 

percent of the annualized costs to 

industry, while ERAs account for the 

remaining 28 percent. 


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Table 4.25. Total Estimated Burden of the Proposed Regulation by Entity Type, by Year 

($ Millions, 2022) 

SEC- Exempt registered Federal Year Investment Reporting Customers Agencies Total 

Advisers Advisers 

2024 $720 $280 $25.0 $8.5 $1,000 

2025 $620 $230 $2.4 $8.5 $860 

2026 $620 $230 $2.6 $8.5 $860 

2027 $600 $230 $2.8 $8.5 $840 

2028 $600 $230 $3.1 $8.5 $840 

2029 $600 $230 $3.4 $8.5 $840 

2030 $600 $230 $3.7 $8.5 $850 

2031 $600 $230 $4.1 $8.5 $850 

2032 $600 $230 $4.5 $8.5 $850 

2033 $600 $230 $4.9 $8.5 $850 

Table 4.26. Total Estimated Burden of the Proposed Regulation by Entity and Business 

Structure, by Year ($ Millions, 2022) 

Dually Affiliated Federal Year Registered Entities Neither Customers Agencies Total 

Entities 

2024 $0.4 $110 $890 $25.0 $8.5 $1,000 

2025 $0 $99 $750 $2.4 $8.5 $860 

2026 $0 $100 $750 $2.6 $8.5 $860 

2027 $0 $95 $740 $2.8 $8.5 $840 

2028 $0 $95 $740 $3.1 $8.5 $840 

2029 $0 $95 $740 $3.4 $8.5 $840 

2030 $0 $96 $740 $3.7 $8.5 $850 

2031 $0 $96 $740 $4.1 $8.5 $850 

2032 $0 $96 $740 $4.5 $8.5 $850 

2033 $0 $96 $740 $4.9 $8.5 $850 
Federal Register / Vol. 89, No. 32 / Thursday, February 15, 2024 / Proposed Rules 12165 

Table 4.28 summarizes the total costs 

of the proposed rule by entity and 

business structure for dual registrants, 

affiliated advisers, and other advisers 

using a 2 percent discount rate. As 

shown in the table, entities that are dual 

registrants account for less than 0.1 

percent, affiliated advisers account for 

approximately 11 percent, and other 

advisers account for approximately 89 

percent of the annualized costs to 

industry. 

(e) Uncertainty Analysis 

As described in section 2, the number 

of RIAs and ERAs is well-defined based 

on the number of Form ADV filings. 

However, there is uncertainty about the 

extent of existing AML/CFT measures 

within each group. While an uncertainty 

analysis could layer various 

assumptions about the percentage of 

RIAs and ERAs that have in place 

certain AML/CFT measures to address 

each individual requirement—and the 

degree to which those measures would 

have to be reviewed and modified to 

comply with the requirements of the 

proposed rule—such information is 

unavailable and the existing framework 

described in the section presents a 

simpler approach to account for this 

uncertainty by varying certain 


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Table 4.27. Total Estimated Burden of the Proposed Regulation by Entity Type, by Year 

($ Millions, 2022) using a 2 percent Discount Rate 

SEC- Exempt registered Federal Year Investment Reporting Customers Agencies Total 

Advisers Advisers 

2024 $720 $280 $25.0 $8.5 $1,000 

2025 $600 $230 $2.3 $8.3 $840 

2026 $590 $220 $2.5 $8.1 $830 

2027 $570 $220 $2.7 $8.0 $790 

2028 $560 $210 $2.9 $7.8 $780 

2029 $540 $210 $3.1 $7.7 $770 

2030 $530 $210 $3.3 $7.5 $750 

2031 $520 $200 $3.6 $7.4 $740 

2032 $520 $200 $3.8 $7.2 $720 

2033 $510 $190 $4.1 $7.1 $710 

10-Year Undiscounted Cost $6,200 $2,400 $57.0 $85.0 $8,700 

10-Year Present Value $5,700 $2,200 $53.0 $78.0 $8,000 

Annualized Cost $620 $240 $5.8 $8.5 $870 

Table 4.28. Total Estimated Burden of the Proposed Rule by Entity and Business 

Structure, by Year ($ Millions, 2022) using a 2 percent Discount Rate 

Dually Affiliated Federal Year Registered Entities Neither Customers Agencies Entities 

2024 $0.4 $ll0 $890 $25.0 $8.5 

2025 $0 $97 $730 $2.3 $8.3 

2026 $0 $96 $720 $2.5 $8.1 

2027 $0 $90 $690 $2.7 $8.0 

2028 $0 $88 $680 $2.9 $7.8 

2029 $0 $86 $670 $3.1 $7.7 

2030 $0 $85 $660 $3.3 $7.5 

2031 $0 $83 $640 $3.6 $7.4 

2032 $0 $82 $630 $3.8 $7.2 

2033 $0 $80 $620 $4.1 $7.1 

10-Year Undiscounted Cost $0.4 $980 $7,600 $57.0 $85.0 

10-Year Present V aloe $0.4 $900 $6,900 $53.0 $78.0 

Annualized Cost $0.04 $98 $760 $5.8 $8.5 

Total 

$1,000 

$840 

$830 

$790 

$780 

$770 

$750 

$740 

$720 

$710 

$8,700 

$8,000 

$870 
12166 Federal Register / Vol. 89, No. 32 / Thursday, February 15, 2024 / Proposed Rules 

323See 2106 IMCTS Survey, supra n. 150. 

assumptions around the categorization 

of RIAs and ERAs. Specifically, this 

Impact Analysis estimates the impact of 

varying assumptions regarding the 

distribution of RIAs and ERAs into 

categories of significant, moderate, and 

limited AML/CFT measures in place. 

This provides a lower and upper bound 

estimate of the potential costs of the 

proposed rule. The costs presented 

earlier in this section represent 

FinCEN’s primary estimate of the 

burden of the proposed rule. 

i. Lower Bound Estimate 

The lower bound estimate assumes 

that a greater proportion of RIAs and 

ERAs have a significant or moderate 

number of AML/CFT measures in place 

and will have to implement relatively 

fewer additional measures under the 

proposed rule. Table 4.29 summarizes 

the total number of entities according to 

the business type and characteristics of 

each RIA and ERA. This represents an 

optimistic, but not implausible, scenario 

based on self-reported assessments 

indicating that approximately 40 

percent of RIAs already have AML/CFT 

policies and procedures consistent with 

the BSA.323 For the lower bound 

estimate, FinCEN assumes the same 

proportion of affiliated ERAs and other 

ERAs have a significant number of 

AML/CFT measures as the 

corresponding RIA groups. Thus, this 

estimate is optimistic in that the number 

of ERAs with policies and procedures 

similar to those of RIAs is highly 

uncertain—although it is still likely to 

be less than the overall percentage of 

RIAs. 

Table 4.30 summarizes the total costs 

of the proposed rule in the lower bound 

scenario using a 2 percent discount rate. 

As shown in the table, although the 

overall costs of the proposed rule are 

lower, the distribution of costs between 

RIAs and ERAs is similar to the primary 

estimate. 

Table 4.31 summarizes the total costs 

of the proposed rule by entity and 

business structure for dual registrants, 

affiliated advisers, and other advisers in 

the lower bound scenario using a 2 

percent discount rate. As shown in the 


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Table 4.29. Number of Affected Investment Advisers by Type (Lower Bound) 

Baseline Registered Investment Advisers Exempt Reporting Advisers 

AML/CFT Dual Affiliated Dual Affiliated Total 

Measures Registrant Advisers Other Registrant Advisers Other 

Significant 436 1,727 4,307 44 216 1,877 8,607 

Moderate 0 576 4,795 0 72 2,090 7,533 

Limited 0 0 3,550 0 0 1,547 5,097 

Table 4.30. Total Estimated Burden of the Proposed Regulation by Entity Type, by Year 

($ Millions, 2022) using a 2 percent Discount Rate (Lower Bound) 

SEC- Exempt registered Federal Year Investment Reporting Customers Agencies Total 

Advisers Advisers 

2024 $390 $160 $9.5 $8.4 $570 

2025 $330 $130 $0.9 $8.3 $480 

2026 $330 $130 $1.0 $8.1 $470 

2027 $310 $130 $1.0 $7.9 $450 

2028 $310 $130 $1.1 $7.8 $440 

2029 $300 $120 $1.2 $7.6 $430 

2030 $290 $120 $1.3 $7.5 $430 

2031 $290 $120 $1.3 $7.3 $420 

2032 $280 $120 $1.4 $7.2 $410 

2033 $280 $110 $1.6 $7.1 $400 

10-YearUndiscounted Cost $3,400 $1,400 $21.0 $84.0 $4,900 

10-Year Present Value $3,100 $1,300 $20.0 $77.0 $4,500 

Annualized Cost $340 $140 $2.2 $8.4 $490 
Federal Register / Vol. 89, No. 32 / Thursday, February 15, 2024 / Proposed Rules 12167 

table, in the lower bound scenario a 

greater proportion of the costs 

(approximately 95 percent) are 

attributed to other advisers. 

ii. Upper Bound Estimate 

The upper bound estimate assumes 

that a greater proportion of RIAs and 

ERAs have limited number of AML/CFT 

measures in place and will have to 

implement relatively greater additional 

measures under the proposed rule. 

Table 4.32 summarizes the total number 

of entities by type and characteristics of 

each RIA and ERA. 

Table 4.33 summarizes the total costs 

of the proposed rule in the upper bound 

scenario using a 2 percent discount rate. 

As shown in the table, although the 

overall costs of the proposed rule are 

higher, the distribution of costs between 

RIAs and ERAs is similar to the primary 

estimate. 


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Table 4.31. Total Estimated Burden of the Proposed Regulation by Entity and Business 

Structure, by Year ($ Millions, 2022) using a 2 percent Discount Rate (Lower Bound) 

Dually Affiliated Federal Year Registered Entities Neither Customers Agencies Total 

Entities 

2024 $0.4 $27 $520 $9.5 $8.4 $570 

2025 $0 $26 $440 $0.9 $8.3 $480 

2026 $0 $25 $430 $1.0 $8.1 $470 

2027 $0 $21 $420 $1.0 $7.9 $450 

2028 $0 $20 $410 $1.1 $7.8 $440 

2029 $0 $20 $400 $1.2 $7.6 $430 

2030 $0 $20 $400 $1.3 $7.5 $430 

2031 $0 $20 $390 $1.3 $7.3 $420 

2032 $0 $19 $380 $1.4 $7.2 $410 

2033 $0 $19 $370 $1.6 $7.1 $400 

10-YearUndiscounted Cost $0.4 $240 $4,500 $21.0 $84.0 $4,900 

10-Year Present Value $0.4 $220 $4,200 $20.0 $77.0 $4,500 

Annualized Cost $0.04 $24 $460 $2.2 $8.4 $490 

Table 4.32. Number of Affected Entities by Type (Upper Bound) 

Baseline Registered Investment Advisers Exempt Reporting Advisers 

AML/CFT Dual Affiliated Dual Affiliated Total 

Measures Registrant Advisers Other Registrant Advisers Other 

Significant 436 0 0 44 0 0 480 

Moderate 0 0 0 0 0 0 0 

Limited 0 2,303 12,652 0 288 5,514 20,757 
12168 Federal Register / Vol. 89, No. 32 / Thursday, February 15, 2024 / Proposed Rules 

Table 4.34 summarizes the total costs 

of the proposed rule by entity and 

business structure for dual registrants, 

affiliated advisers, and other advisers in 

the upper bound scenario using a 2 

percent discount rate. As shown in the 

table, although the overall costs of the 

proposed rule are higher, the 

distribution of costs between the 

different types of RIAs and ERAs is 

similar to the primary estimate. 

iii. Comparison of Costs in the Lower 

and Upper Bound Estimates 

As described in this section, FinCEN 

estimates the cost of the proposed rule 

to regulated entities will be 

approximately $870 million on an 

annualized basis. In comparison to 

alternative assumptions about the 

degree of existing AML/CFT measures 

among RIAs and ERAs subject to the 

proposed rule, FinCEN’s primary 

estimate is relatively conservative in 

that it assumes a greater proportion of 

RIAs and ERAs have only a moderate or 

limited number of existing AML/CFT 

measures in place in comparison to 

input provided by industry suggesting 

that figure may be lower. Therefore, the 

primary estimate is closer to the upper 

bound than the lower bound. Under the 


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Year 

2024 

2025 

2026 

2027 

2028 

2029 

2030 

2031 

2032 

2033 

Table 4.33. Total Estimated Burden of the Proposed Regulation by Business Type, by 

Year($ Millions, 2022) using a 2 percent Discount Rate (Upper Bound) 

SEC- Exempt registered Federal Year Investment Reporting Customers Agencies Total 

Advisers Advisers 

2024 $890 $330 $45.0 $8.5 $1,300 

2025 $700 $260 $4.2 $8.3 $970 

2026 $690 $250 $4.5 $8.1 $950 

2027 $660 $250 $4.8 $8.0 $910 

2028 $640 $240 $5.2 $7.8 $900 

2029 $630 $240 $5.5 $7.7 $880 

2030 $620 $230 $6.0 $7.5 $870 

2031 $610 $230 $6.4 $7.4 $850 

2032 $600 $220 $6.9 $7.2 $830 

2033 $590 $220 $7.4 $7.1 $820 

10-Year Undiscounted Cost $7,200 $2,700 $100.0 $85.0 $10,000 

10-Year Present Value $6,600 $2,500 $96.0 $78.0 $9,300 

Annualized Cost $720 $270 $10.0 $8.5 $1,000 

Table 4.34. Total Estimated Burden of the Proposed Regulation by Business Structure, by 

Year($ Millions, 2022) using a 2 percent Discount Rate (Upper Bound) 

Dually Affiliated Federal Registered Entities Neither Customers Agencies Total 

Entities 

$0.4 $160 $1,100 $45.0 $8.5 $1,300 

$0 $130 $830 $4.2 $8.3 $970 

$0 $130 $810 $4.5 $8.1 $950 

$0 $120 $780 $4.8 $8.0 $910 

$0 $120 $760 $5.2 $7.8 $900 

$0 $120 $750 $5.5 $7.7 $880 

$0 $120 $730 $6.0 $7.5 $870 

$0 $120 $720 $6.4 $7.4 $850 

$0 $ll0 $710 $6.9 $7.2 $830 

$0 $ll0 $690 $7.4 $7.1 $820 

10-YearUndiscounted Cost $0.4 $1,400 $8,500 $100.0 $85.0 $10,000 

10-Year Present V aloe $0.4 $1,200 $7,800 $96.0 $78.0 $9,300 

Annualized Cost $0.04 $140 $850 $10.0 $8.5 $1,000 
Federal Register / Vol. 89, No. 32 / Thursday, February 15, 2024 / Proposed Rules 12169 

324 Independent testing under the proposed rule 

can be conducted by an adviser’s employees and is 

not required to be conducted by a third-party 

vendor. The costs identified here could be less than 

estimated to the extent employees (and not thirdparty vendors) are used. 

325The alternative third party vendor costs are 

more in line with the cost estimates in the 2020 

GAO BSA Report for ‘‘Large Community Bank A’’ 

($501 million to $600 million in assets) and ‘‘Large 

Credit Union A’’ ($101 million to $201 million in 

assets). In comparison, the primary cost estimates 

are based on ‘‘Large Community Bank B’’ ($401 

million to $500 million in assets) in the same 

report. 

most pessimistic assumptions regarding 

the degree of existing AML/CFT 

measures, the proposed rule is 

estimated to cost approximately $1 

billion on an annualized basis. This 

scenario is highly improbable because 

more than 520 RIAs (out of 690 

surveyed) indicated that they already 

have a significant or moderate number 

of AML/CFT measures in place. Under 

more optimistic assumptions about the 

proportion of RIAs with a significant or 

moderate number of AML/CFT 

measures in place, FinCEN estimates the 

cost of the proposed rule will be 

approximately $490 million on an 

annualized basis. Table 4.35 provides a 

comparison of the estimated costs of the 

proposed rule under each of these 

scenarios. 

iv. Alternative Higher Third Party 

Vendor Cost Scenario 

While the estimated costs of the 

proposed rule are not highly sensitive to 

several of the unit cost assumptions 

described in this section—in part 

because most of the labor costs are 

generally estimated in hours rather than 

days or weeks—two of the major cost 

drivers of the proposed rule are software 

licensing fees and independent testing. 

Therefore, FinCEN compared how the 

estimated costs changed if third-party 

vendor costs increased by 100 

percent.324 The estimated costs are 

relatively sensitive to assumptions 

regarding third-party fees for certain 

AML/CFT functions because these 

comprise a large share of the overall 

costs for RIAs and ERAs with a 

moderate or limited number of existing 

AML/CFT measures in place. Table 4.36 

reports alternative cost assumptions for 

third-party vendor costs that are double 

the primary estimate.325 FinCEN 

assessed that the average technology 

costs used in the primary estimate are 

more likely to be representative of the 

costs likely to be incurred by RIAs and 

ERAs, which are typically much smaller 

than the bank benchmark in the 2020 

GAO BSA Report. Smaller banks 

generally reported lower technology 

costs. However, for direct comparison 

this regulatory impact analysis reports 

higher estimated technology costs as an 

alternative scenario. 


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Table 4.35. Comparison of Compliance Costs using Lower and Upper Bound Estimates 

Relative to the Primary Estimate ($ Millions, 2022) using a 2 percent Discount Rate 

Year1 Lower Bound Primary Upper Bound Estimate 

2024 $570 $1,000 $1,300 

2025 $480 $840 $970 

2026 $470 $830 $950 

2027 $450 $790 $910 

2028 $440 $780 $900 

2029 $430 $770 $880 

2030 $430 $750 $870 

2031 $420 $740 $850 

2032 $410 $720 $830 

2033 $400 $710 $820 

10-Year Undiscounted Cost $4,900 $8,700 $10,000 

10-Year Present Value $4,500 $8,000 $9,300 

Annualized Cost $490 $870 $1,000 

Table 4.36 Alternative Compliance Costs for Independent Testing, Software, and Other 

Third Party Technology Vendors (in 2022 dollars) 

Primary Alternative Cost Compliance Activity Estimate Cost Assumption Assumption 

AML/CFT Software Costs $12,400 $24,800 

Independent Testing $17,000 $34,000 
12170 Federal Register / Vol. 89, No. 32 / Thursday, February 15, 2024 / Proposed Rules 

326NASAA Investment Adviser Section: 2023 

Annual Report, p.2, https://www.nasaa.org/wpcontent/uploads/2023/09/2023-IA-Section-ReportFINAL.pdf. 

327See Id. The average number of employees per 

investment adviser was calculated as a weighted 

average of the bins reported on page 5, using the 

following employees for each respective bin: 2 [0– 

2 employees], 6.5 [3–10 employees], 15 [11–20 

employees], 25 [>20 employees]. 

Table 4.37 provides a comparison of 

the estimated costs of the proposed rule 

under the higher technology cost 

scenario. Overall, the estimated costs 

would be approximately 60 percent 

higher under this scenario relative to the 

primary estimate. FinCEN ascribes a low 

probability to the average technology/ 

third-party vendor costs being this high 

given the typical size of RIAs and ERAs 

affected by the proposed rule. 

5. Regulatory Alternatives 

This section evaluates the potential 

benefits and costs of regulatory 

alternatives in comparison to the 

proposed regulation. This regulatory 

impact analysis considers two 

alternatives as described below. 

(a) Alternative 1: Inclusion of StateRegistered Investment Advisers 

In the first alternative, FinCEN 

considered including State-registered 

investment advisers in the proposed 

rule. This alternative would bring all 

investment advisers that file Form ADV 

and register with a Federal or State 

regulatory authority under the scope of 

the proposed rule. FinCEN estimates 

there are approximately 17,000 Stateregistered investment advisers, based on 

reports from the North American 

Security Administrators Association 

(NASAA).326 Table 5.1 summarizes their 

characteristics. 

FinCEN assumed that the costs of the 

rule would apply to State-registered 

investment advisers in the same way as 

for RIAs that are ‘‘other advisers’’. If 

State-registered investment advisers are 

less likely than RIAs to have any AML/ 

CFT measures in the baseline, then this 

assumption would understate the costs 

of the rule for State-registered 

investment advisers. Under the 

assumptions of the cost model in 

section 3, Table 5.2. summarizes the 

total costs of Alternative 1 for Stateregistered investment advisers in 

addition to the other entities subject to 

regulation. 


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Table 4.37. Comparison of Compliance Costs using Higher Technology Cost Relative to 

the Primary Estimate ($ Millions, 2022) using a 2 percent Discount Rate 

Primary High 

Year1 Technology Estimate Cost Estimate 

2024 $1,000 $1,500 

2025 $840 $1,300 

2026 $830 $1,300 

2027 $790 $1,300 

2028 $780 $1,300 

2029 $770 $1,200 

2030 $750 $1,200 

2031 $740 $1,200 

2032 $720 $1,200 

2033 $710 $1,100 

10-Year Undiscounted Cost $8,700 $14,000 

10-Year Present Value $8,000 $13,000 

Annualized Cost $870 $1,400 

Table 5.1: Characteristics of State-registered Investment Advisers327 

Characteristic 

Number of Investment Advisers 17 063 

Average No. Employees 2.9 

Avg. No. Individual Clients 46 

Avg. No. PIV Clients 0.1 

Avg. No. Legal Entitv Clients 1.1 

Avg.AUM $24.7 million 
Federal Register / Vol. 89, No. 32 / Thursday, February 15, 2024 / Proposed Rules 12171 

328See Treasury, Investment Adviser Illicit 

Finance Risk Assessment, https://

home.treasury.gov/system/files/136/US-SectoralIllicit-Finance-Risk-Assessment-InvestmentAdvisers. 

329A survey of select State securities regulators 

found that for State-registered investment advisers 

they supervised, on average, less than 3 percent of 

their customers were non-U.S. persons. 

FinCEN assesses the potential benefits 

of including State-registered investment 

advisers in the definition of ‘‘financial 

institution’’ are significantly smaller 

relative to the likely benefits of 

including RIAs and ERAs. Although the 

overall benefits may exceed those of the 

proposed regulation because the 

requirements extend to a larger number 

of entities, the limited incremental 

benefits of applying the requirements to 

State-registered investment advisers 

suggest this would be a less costeffective approach to regulation. 

Specifically, including Stateregistered investment advisers nearly 

doubles the cost of the proposed rule, 

because of the large number of Stateregistered investment advisers. But such 

inclusion is less likely to achieve the 

same degree of benefits as for other 

investment advisers, partly because 

State-registered advisers are smaller, in 

terms of number of clients and AUM, 

and their customers tend to be localized. 

Treasury’s risk assessment found few 

examples of State-registered investment 

advisers being used to move illicit 

proceeds or facilitate other illicit 

activity.328 Further, the vast majority of 

their clients are natural persons who are 

not high net-worth customers and are 

U.S. persons.329 Therefore, FinCEN 

rejected this regulatory alternative in 

favor of the more cost-effective 

approach in the proposed regulation. 

(b) Alternative 2: Requirements for 

Private Fund Advisers To Conduct RiskBased Customer Due Diligence and 

Amendments to Form PF for Reporting 

Beneficial Ownership Information for 

the Private Funds Being Advised 

In the second alternative, FinCEN 

considered whether to limit the rule 

requirements to only certain reporting 

requirements among private fund 

advisers. In particular, the alternative 

rule would require private fund advisers 

to conduct risk-based customer due 

diligence and to report beneficial 

ownership information. 

Under Alternative 2, investment 

advisers would incur compliance costs 

associated with the following 

requirements: (1) identifying beneficial 

ownership for new legal entity and PIV 

accounts and (2) developing a customer 

risk profile for legal entities. Investment 

advisers would be exempt from other 

requirements of the BSA, including 

developing and maintaining an AML/ 

CFT program, filing SARs, and other 

recordkeeping requirements. Investment 

advisers that do not advise private funds 

would also be exempt from any 

requirement. Alternative 2 would limit 

both the covered population and the 

number of requirements, relative to the 

proposed rule. FinCEN estimates there 

are approximately 11,000 RIAs advising 

private funds, as well as all ERAs. Some 

RIAs and ERAs already have measures 

in place that would meet the 

requirements of Alternative 2. 

FinCEN estimated the cost of 

Alternative 2 based on the same cost 

methodology as in section 3, in this case 

only for investment advisers that report 

private funds in Form ADV. As 

described in sections 2 and 3, FinCEN’s 

cost analysis assumed that RIAs and 

ERAs with a significant or moderate 

number of AML/CFT measures would 

already meet the requirements of 

Alternative 2; those RIAs and ERAs 

would have zero cost burden under this 

alternative. Therefore, the costs are 

borne only by RIAs and ERAs with a 

limited number of AML/CFT measures 

in the baseline. FinCEN used Form ADV 

data for those advisers that advise 

private funds, and Table 5.3. 

summarizes the total costs of 

Alternative 2. For Alternative 2, there 

are no estimated Federal agency costs 

attributed to the CDD requirement. 


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Table 5.2. Total Estimated Burden of Alternative 1 by Entity Type, by Year ($ Millions, 

2022) 

Registered Exempt Stateregistered Federal Year Investment Reporting Investment Customers Agencies Total 

Advisers Advisers Advisers 

2024 $720 $280 $820 $25.0 $8.5 $1,900 

2025 $620 $230 $680 $2.4 $8.5 $1,500 

2026 $620 $230 $680 $2.6 $8.5 $1,500 

2027 $600 $230 $680 $2.8 $8.5 $1,500 

2028 $600 $230 $680 $3.1 $8.5 $1,500 

2029 $600 $230 $680 $3.4 $8.5 $1,500 

2030 $600 $230 $680 $3.7 $8.5 $1,500 

2031 $600 $230 $680 $4.1 $8.5 $1,500 

2032 $600 $230 $680 $4.5 $8.5 $1,500 

2033 $600 $230 $680 $4.9 $8.5 $1,500 
12172 Federal Register / Vol. 89, No. 32 / Thursday, February 15, 2024 / Proposed Rules 

FinCEN rejected this regulatory 

alternative in favor of the proposed 

regulation because, although it is a less 

costly rule, it is less likely to provide a 

similar level of benefits and thus would 

not achieve FinCEN’s objectives in 

addressing the illicit finance risk for 

investment advisers. The absence of 

mandatory SAR filing in this regulatory 

alternative would limit the potential 

benefits to law enforcement to 

investigate financial crimes and 

interagency cooperation on national 

security threats and their associated 

financial activity. Further, the lack of 

information sharing authorities would 

limit the ability of law enforcement and 

other agencies, as well as other financial 

institutions, to provide more specific 

information on illicit finance threats. 

This alternative would also not be 

sufficient for the U.S. to be in 

compliance with the international AML/ 

CFT standards established by the FATF. 

(c) Comparison 

Table 5.4 reports the costs for each of 

the regulatory alternatives in 

comparison to the proposed regulation. 

Table 5.5 provides a detailed 

summary of the costs and benefits 

associated with each regulatory 

alternative (annualized using a 2 

percent discount rate over 10 years). 


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Table 5.3. Total Estimated Burden of Alternative 2 by Entity Type, by Year ($ Millions, 

2022) 

Registered Exempt 

Year1 Investment Reporting Customers Total 

Advisers Advisers 

2024 I $33.0 I $1.4 $25.0 $60.0 

2025 $9.1 $1.0 $2.4 $12.0 

2026 $9.4 $1.0 $2.6 $13.0 

2027 $5.9 $1.0 $2.8 $9.7 

2028 $6.3 $1.0 $3.1 $10.0 

2029 $6.7 $1.0 $3.4 $11.0 

2030 $7.2 $1.0 $3.7 $12.0 

2031 $7.7 $1.0 $4.1 $13.0 

2032 $8.3 $1.0 $4.5 $14.0 

2033 $8.9 $1.0 $4.9 $15.0 

Table 5.4. Comparison of Costs of Regulatory Alternatives to the Proposed Regulation ($ 

Millions, 2022) using a 2 percent Discount Rate 

Year1 Alternative 1 Alternative 2 

2024 $1,900 $60.0 

2025 $1,500 $12.0 

2026 $1,500 $13.0 

2027 $1,400 $9.1 

2028 $1,400 $9.6 

2029 $1,400 $10.0 

2030 $1,400 $11.0 

2031 $1,300 $11.0 

2032 $1,300 $12.0 

2033 $1,300 $12.0 

10-Year Undiscounted Cost $16,000 $170.0 

10-Year Present Value $14,000 $160.0 

Annualued Cost $1,600 $17.0 
Federal Register / Vol. 89, No. 32 / Thursday, February 15, 2024 / Proposed Rules 12173 

330 5 U.S.C. 601 et seq. 

331See 13 CFR 121.201. 

332As noted above, FinCEN is proposing to 

amend section 1010.810 to include investment 

advisers within the list of financial institutions that 

the SEC would examine for compliance with the 

BSA’s implementing regulations. 

B. Regulatory Flexibility Analysis 

The RFA 330 requires an agency either 

to provide an initial regulatory 

flexibility analysis (IRFA) with a 

proposed rule or certify that the 

proposed rule would not have a 

significant economic impact on a 

substantial number of small entities. 

This section, VII.B, contains the IRFA 

prepared pursuant to the RFA. A final 

regulatory flexibility analysis or 

certification that the proposed rule 

would not have a significant economic 

impact on a substantial number of small 

entities will be conducted after 

consideration of comments received 

during the comment period. 

1. Statement of the Need for, and 

Objectives of, the Proposed Rule 

As described above in section IV.A.1 

and section VII.A.1, FinCEN is 

proposing this rule to address identified 

illicit finance risks in the investment 

adviser industry. FinCEN is proposing 

regulations to apply AML/CFT program, 

recordkeeping and reporting 

requirements to RIAs and ERAs. 

2. Small Entities Affected by the 

Proposed Rule 

FinCEN is proposing to define the 

term small entity in accordance with the 

definition of ‘‘small business’’ or ‘‘small 

organization’’ under the Advisers Act 

rule adopted for purposes of the RFA, in 

lieu of using the Small Business 

Administration’s definition.331

Relying on the SEC’s definition, 

which it has adopted by regulation, has 

the benefit of ensuring consistency in 

the categorization of small entities for 

the SEC’s purposes,332 as well as 

providing the advisory industry with a 

uniform standard. Using the SEC 

standard also allows FinCEN to use the 

most current and precise data about 

investment advisers. Investment 

advisers must update Form ADV, 


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Table 5.5. Summary of Benefits and Costs of Regulatory Alternatives ($ Millions, 2022) 

Number of Covered 

Entities 

Annualized Monetized 

Benefits (2%) 

Unquantified Benefits 

Annualized Monetized 

Costs, millions 2% 

Annualized monetized net 

benefits, millions 2% 

Change from the 

Pro ation 

Alternative 1 

38,300 

NIA 

• Increase access for law 

enforcement to relevant 

information for complex 

financial crime 

investigations and asset 

forfeiture. 

• Enhance interagency 

understanding of priority 

national security threats 

and their associated 

financial activity. 

• Improve financial system 

transparency and integrity, 

and align with 

international financial 

standards to strengthen the 

U.S. financial system from 

abuse by illicit actors. 

$1,570 

-$1,570 

-$700 

Alternative 2 

17,614 

NIA 

• Improve financial system 

transparency and integrity 

for certain investment 

advisers. 

$17 

-$17 

+$850 
12174 Federal Register / Vol. 89, No. 32 / Thursday, February 15, 2024 / Proposed Rules 

333See 15 U.S.C. 80b–3a. As described above, 

SEC registration is generally determined by AUM. 

See supra, n. 24. In addition, investment advisers 

filing Form PF are required to provide additional 

information if they have more than $1.5 billion in 

hedge fund assets under management or more than 

$2 billion in private equity fund assets under 

management. See Form PF Instructions on p. 2 and 

3 at https://www.sec.gov/files/formpf.pdf. 

334See 80 FR at 52695; see also SEC, Private Fund 

Advisers; Documentation of Registered Investment 

Adviser Compliance Reviews, Final Rule, 

Investment Advisers Act Release No. 6383 (Aug. 23, 

2023) 88 FR 63206, 63382–3, (Sep. 14, 2023). 

335 17 CFR 275.0–7(a). 

336See 17 CFR 275.203A–1. 

337Based on Form ADV data as of July 31, 2023. 

To determine the number of RIAs that were ‘‘small 

entities’’, Treasury reviewed responses to Items 5.F. 

and 12 of Form ADV. 

338 In order for an adviser to be an ERA it would 

first need to have an SEC registration obligation, 

and an adviser with that little in assets under 

management (i.e., assets under management that is 

low enough to allow the adviser to qualify as a 

small entity) would not have an SEC registration 

obligation. See 88 FR 63206, 63383 and footnote 

1895 regarding small entity ERAs. 

339U.S. Census Bureau, Economic Census, web 

page, last updated on Aug. 31, 2023. 

340 Data accessed at https://www.census.gov/data/ 

tables/2017/econ/susb/2017-susb-annual.html. 

including whether they qualify as a 

‘‘small entity,’’ at least annually. 

Because Form ADV information is 

individualized to each investment 

adviser, FinCEN can identify the 

specific entities qualifying as ‘‘small 

entities’’ under the SEC standard. 

In contrast, information on business 

revenue is derived from the Economic 

Census, and the most recent Economic 

Census data reflect business information 

for 2017. This data is not individualized 

to specific firms and as detailed below, 

likely includes other firms that are not 

covered by the proposed rule requiring 

FinCEN to make additional 

assumptions. This data represents the 

average revenues of all firms, not just 

RIAs and ERAs, with less than $50 

million in annual receipts rather than 

firms with assets under management of 

less than $25 million. This is likely to 

be an underestimate because those firms 

that are required to register with the 

SEC tend to be larger and many of the 

firms reported in the SUSB, particularly 

State-registered investment advisers, 

would not be subject to the proposed 

rule. Given the data limitations, it is not 

feasible to directly estimate the average 

annual revenues of investment advisers 

that fall under the definition of ‘‘small 

entity’’ described above. 

Further, using a standard tied to AUM 

is consistent with how Congress (in the 

2010 Dodd-Frank Act) and SEC 

regulations distinguish between small, 

mid-sized, and large investment 

advisers and how other regulatory 

requirements are applied to investment 

advisers.333 Using this standard would 

also be consistent with the standard 

applied by FinCEN in the Second 

Proposed Investment Adviser Rule and 

the SEC in recent rulemakings for 

investment advisers.334 This is a wellknown, common-sense understanding of 

investment adviser size based on assets 

under management (e.g., small advisers 

are those managing less than $25 

million in customer assets). Further, 

FinCEN notes that over 70 percent of 

advisers covered by the proposed rule 

manage at least $110 million in 

customer assets and accordingly would 

not be understood to be small entities. 

In addition, FinCEN’s proposed use of 

the SEC’s definition of small entity will 

have no material impact upon the 

application of these proposed rules to 

the advisory industry. FinCEN requests 

comment on the appropriateness of 

using the SEC’s definition for these 

purposes. 

Under SEC rules under the Advisers 

Act, for the purposes of the RFA, an 

investment adviser generally is a small 

entity if it: (i) has, and reports on Form 

ADV, assets under management of less 

than $25 million; (ii) has less than $5 

million on the last day of its most recent 

fiscal year; and (iii) does not control, is 

not controlled by, and is not under 

common control with another 

investment adviser that has assets under 

management of $25 million or more, or 

any person (other than a natural person) 

that had total assets of $5 million or 

more on the last day of its most recent 

fiscal year.335

Generally speaking, only large 

advisers, having $110 million or more in 

regulatory assets under management, are 

required to register with the SEC.336 The 

proposed rule would not affect most 

investment advisers that are small 

entities (‘‘small advisers’’) because they 

are generally registered with one or 

more State securities authorities and not 

with the SEC. Under section 203A of the 

Advisers Act, most small advisers are 

prohibited from registering with the 

Commission and are regulated by State 

regulators.337

As of July 2023, there were 573 RIAs 

that would be considered ‘‘small 

entities’’ under the SEC’s definition. We 

estimate that there are no ERAs that 

would meet the definition of ‘‘small 

entity.’’ 338 Therefore, approximately 2.7 

percent of all investment advisers 

impacted by the proposed regulation are 

estimated to be small entities. Based on 

this, FinCEN estimates that the 

proposed rule will not impact a 

substantial number of small entities. 

Regarding the economic impact on 

small entities, Form ADV does not 

collect revenue information. Therefore, 

additional information on investment 

advisers was obtained from the U.S. 

Economic Census. The Economic 

Census, conducted every five years by 

the U.S. Census Bureau, is the U.S. 

Government’s official measure of 

American businesses, representing most 

industries and geographic areas of the 

United States and Island Areas.339 It 

provides information on business 

locations, employees, payroll, and 

revenues. The most recent Economic 

Census data reflect business information 

for 2017. These data are reported in the 

U.S. Census Bureau’s annual Statistics 

of U.S. Businesses (SUSB). 

Based on data from the 2017 SUSB: 

Other Financial Investment Activities 

(for NAICS 5239), the average firm had 

approximately $7.4 million in annual 

revenue adjusted for inflation to 2022 

dollars using the GDP price deflator.340

Furthermore, according to that data, 

approximately 98 percent of firms had 

less than $50 million in annual receipts, 

with average revenues of approximately 

$1.6 million measured in 2022 dollars. 

Table B–1 reports the distribution of 

firms in other financial investment 

activities (NAICS 5239) by firm size. 


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Federal Register / Vol. 89, No. 32 / Thursday, February 15, 2024 / Proposed Rules 12175 

341This information is reported in Table 2.7 of 

the Impact Analysis. 

Importantly, as discussed above 

regarding the limitations with Economic 

Census data, the $1.6 million figure is 

an imperfect proxy for the annual 

revenues of investment advisers subject 

to the proposed rule that meet the SEC’s 

definition of a small entity. 

As further detailed in the section 

below, using information from the SUSB 

for firms with revenues below $50 

million, FinCEN estimates that the 

annualized cost burden of the proposed 

rule would be approximately 2.6 

percent of revenues for a small 

investment adviser. FinCEN is unable to 

conclusively determine whether such a 

cost burden would be ‘‘significant’’ for 

purposes of the RFA, and so as it is 

unable to certify that the proposed rule 

would not ‘‘have a significant economic 

impact on a substantial number of small 

entities.’’ Therefore, FinCEN is 

conducting this IRFA. 

3. Compliance Costs 

To examine the potential impact of 

the proposed rule on small entities, 

FinCEN estimates the average 

compliance costs for a small firm and 

compares those costs to small firms’ 

average annual revenues. As described 

above, 573 RIAs would be considered 

small entities under the proposed 

definition. All small firms affected by 

this rule will bear upfront costs to revise 

their standard operating procedures to 

establish or update an existing AML/ 

CFT program. Small firms that do not 

already have a significant or moderate 

number of AML/CFT measures in place 

would need to adopt additional 

measures, such as collecting additional 

information to develop a customer risk 

profile for new and existing clients and 

conducting ongoing CDD, filing SARs, 

acquiring AML/CFT software licenses, 

complying with other information 

collection requests, and general 

recordkeeping activities. To estimate 

these costs for small entities, FinCEN 

relies on the methodology described in 

the Impact Analysis applied to the 

subset of entities and relevant financial 

characteristics of small RIAs. Table B.2 

reports the financial characteristics of 

small entities compared with all other 

RIAs impacted under the proposed rule 

based on information reported in their 

Form ADV filings.341


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Table B.1. Average Annual Receipts and Employment by Firm Size for NAICS 5239 

Firm Size Average Annual 

(based on 2017 receipts) Percent of Firms Receipts 

($2022) 

<$100,000 20.3 $55,000 

$100,000-$499,999 39.5 $300,000 

$500,000-$999 ,999 15.0 $830,000 

$1,000,000-$2,499,999 12.4 $1,800,000 

$2,500,000-$4,999 ,999 4.8 $4,000,000 

$5,000,000-$7,499,999 1.8 $6,800,000 

$7,500,000-$9,999,999 1.0 $9,600,000 

$10,000,000-$14,999 ,999 1.0 $13,000,000 

$15,000,000-$19,999,999 0.6 $18,000,000 

$20,000,000-$24,999 ,999 0.4 $23,000,000 

$25,000,000-$29 ,999 ,999 0.3 $27,000,000 

$30,000,000-$34,999 ,999 0.2 $30,000,000 

$35,000,000-$39,999,999 0.2 $34,000,000 

$40,000,000-$49 ,999 ,999 0.3 $40,000,000 

$50,000,000-$7 4,999,999 0.4 $50,000,000 

$75,000,000-$99,999,999 0.2 $67,000,000 

$100,000,000+ 1.5 $380,000,000 

All Firms <$50,000,000 97.9 $1,600,000 

All Firms $50,000,000+ 2.1 $280,000,000 

Total 100 $7,400,000 
12176 Federal Register / Vol. 89, No. 32 / Thursday, February 15, 2024 / Proposed Rules 

Based on this information, the average 

cost of the proposed rule for a small 

investment adviser (i.e., those managing 

up to $25 million in client assets) would 

be approximately $48,000 in the first 

year of the regulation and $40,000 in 

subsequent years. These costs vary 

slightly across the different categories of 

RIAs described in the Impact Analysis, 

with a small number of dual registrants 

likely to incur less than $1,000 in 

compliance costs. Table B.3. reports the 

average costs per small entity by 

compliance activity in the first year and 

subsequent years of the proposed 

regulation. 

Therefore, the average annualized cost 

of the proposed rule for a small 

investment adviser over the first 10 

years would be approximately $41,000. 

This suggests the annualized cost 

burden of the proposed rule would be 

approximately 2.6 percent of revenues 

for a small investment adviser when 

using information from the SUSB for 

firms with revenues below $50 million. 

However, this estimate assumes that less 

than 1 percent of small investment 

advisers have a significant number of 

AML/CFT measures in place and more 

than 60 percent have a limited number 

of AML/CFT measures in place and 

would have to develop a full AML/CFT 

program and initial and ongoing CDD 

measures. If the assumed distribution 

was overly pessimistic and more small 

investment advisers had a significant or 

moderate number of existing AML/CFT 

measures in place in the baseline, the 

average cost burden would be lower. 

Based on the lower bound estimate 

discussed in section 3, the average 

annualized cost of the proposed rule for 

a small investment adviser would be 

approximately $38,000, suggesting the 

average cost burden would be 

approximately 2.4 percent of revenues. 

Table B.4 reports the number of small 

entities, annualized cost, and 

compliance cost as a percentage of 

revenue for small firms, broken down by 

industry category. 


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Table B.2: Characteristics of RIAs by Business Size 

Characteristic Small Entities All Other 

RIAs 

Average No. Emolovees 6 65 

Percent that Advise Private Funds 23% 55% 

Avg_ No. Individual Clients 1.003 3 450 

Avg. No. High-net Worth Clients 1 492 

Avg. No. PIV Clients 0 7 

Avg_ No. Legal Entitv Clients 15 187 

Table B.3: Average Costs Per Small Entity (in 2022 dollars) 

Activity Yearl Years 2-10 

AML/CFT Program $25,000 $17,000 

Customer Due Diligence $1,500 $1,000 

SAR Filings $10,000 $10,000 

Recordkeeping $2,200 $2,200 

314(a) Requests $1,500 $1,500 

Software Licensing $7,700 $7,700 

Section 311 Measures $240 $240 

Total $48,000 $40,000 
Federal Register / Vol. 89, No. 32 / Thursday, February 15, 2024 / Proposed Rules 12177 

4. Duplicative, Overlapping, or 

Conflicting Federal Rules 

As described above in section VII.A.1, 

there are no Federal rules that directly 

and fully duplicate, overlap, or conflict 

with the proposed rule. While some 

investment advisers implement AML/ 

CFT requirements because they are 

dually registered as broker-dealers, as a 

bank, or affiliated with a bank or brokerdealer, the majority of the investment 

adviser industry is not subject to any 

comprehensive AML/CFT requirements. 

FinCEN is aware that requirements 

within the Advisers Act and other 

Federal securities laws impose 

requirements upon investment advisers 

that in some instances are similar to the 

requirements proposed within this rule 

and perform similar roles (i.e., 

improving the integrity of the U.S. 

financial system and protecting 

customers). However, while these 

existing requirements may provide a 

supporting framework for implementing 

certain obligations in the proposed rule, 

they do not impose the specific AML/ 

CFT measures in the proposed rule. 

5. Significant Alternatives That Reduce 

Burden on Small Entities 

FinCEN considered the burden this 

proposed approach would have on 

covered investment advisers. FinCEN is 

mindful of the effect of new regulations 

on small businesses, given their critical 

role in the U.S. economy and the special 

consideration that Congress and 

successive administrations have 

mandated that Federal agencies should 

give to small business concerns. FinCEN 

considered an alternative scenario in the 

Impact Analysis above (Alternative 2) 

that would apply a much more limited 

information collection requirement to 

only those RIAs that advise private 

funds and ERAs (who only advise 

private funds). In this scenario, advisers 

to private funds would be required to 

conduct risk-based customer due 

diligence and to report beneficial 

ownership information. 

Based on the cost information in the 

table above and the number of legal 

entity and PIV customers of small entity 

RIAs identified in Table 2.7 of the 

Impact Analysis, FinCEN estimates that 

the cost of this alternative for each small 

entity would be less than $1,000 on 

average. 

Despite the significantly smaller cost 

of this alternative, FinCEN determined 

that this alternative would not 

accomplish the objectives of the 

proposed rule. As noted above, the 

absence of a SAR filing requirement 

would limit the potential benefits to law 

enforcement to investigate financial 

crimes and interagency cooperation on 

national security threats and their 

associated financial activity. Further, 

without being defined as financial 

institutions and thereby being able to 

receive and share information under 

sections 314(a) and 314(b), investment 

advisers would be unable to access 

useful information to help mitigate 

illicit finance risks. 

As another alternative to reduce the 

burden on small entities, FinCEN 

considered limiting the applicability of 

the proposed rule to investment 

advisers with AUM above a certain 

threshold, as reported on Form ADV. 

Investment advisers with AUM below 

the threshold would be exempt from the 

requirements of the proposed rule. 

FinCEN decided not to pursue this 

alternative because doing so would not 

apply a risk-based approach to the 

industry. AUM by itself, without 


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Table B.4. Average Annualized Cost of the Proposed Rule for Small Entities 

Number of Small Average Compliance Cost 

Investment Adviser Type Entities Annualized Cost1 as Percentage of 

Annual Revenue 

Dual Re.cistrants 5 <$1,000 <0.1% 

Affiliated or Other Advisers with a 

Moderate Number of AML/CFT 214 $31,000 1.9% 

Measures 

Affiliated Advisers with a Limited 12 $61,000 3.8% Number of AML/CFT Measures 

Other Advisers with a Limited 342 $47,000 2.9% Number of AML/CFT Measures 

All Small Entities 573 $41,000 2.6% 

Table B.5: Average Cost of Information Collection for Ongoing CDD 

New Account Clerk Total Total Cost 

Activity %Time Hourly Hours per 

Cost Customer 

Develop a Customer Risk 100% $34.74 0.25 $8.68 Profile for a Legal Entity 

Collect Beneficial 

Ownership Information for a 100% $34.74 0.5 $17.37 

Legal Entity 

Collect Beneficial 

Ownership Information for a 100% $34.74 3.0 $104.22 

Pooled Investment Vehicle 
12178 Federal Register / Vol. 89, No. 32 / Thursday, February 15, 2024 / Proposed Rules 

342See Treasury, Investment Adviser Illicit 

Finance Risk Assessment, https://home.treasury.

gov/system/files/136/US-Sectoral-Illicit-FinanceRisk-Assessment-Investment-Advisers. 

343 2020 GAO BSA Report at p. 3. 

344 44 U.S.C. 3506(c)(2)(A). 

considering the attributes of a particular 

customer (such as legal entity v. natural 

person, or U.S. v. non-U.S. person), is 

not a useful indicator of potential 

risk.342 Such an exemption could also 

create a subset of ‘‘smaller’’ investment 

advisers who may actually be more 

vulnerable to illicit finance because they 

can offer the same services as other 

advisers, but without any AML/CFT 

requirements. 

FinCEN also notes that the AML/CFT 

requirements in the proposed rule are 

designed to be risk-based and their cost 

is largely based on factors directly 

correlated with the size of an 

investment adviser, such as the number 

of customers and transactions, along 

with the risk level of its advisory 

activities and customers. For instance, 

according to the 2020 GAO BSA Report, 

the two most costly requirements for 

banks as a percentage of total AML/CFT 

compliance costs were the customer due 

diligence and SAR filing requirements, 

accounting for approximately 60 percent 

of total costs.343 The cost of other 

requirements in the proposed rule, such 

as employee training, are also likely to 

vary with the size of the business. The 

requirements of the proposed rule 

therefore have some inherent flexibility 

whereby small entities serving a smaller 

number of customers are likely to have 

lower costs. 

FinCEN welcomes comment on this 

IRFA and any significant alternatives 

that would minimize the impact of the 

proposed rule on small entities and still 

accomplish the objectives of the 

proposed rule. 

C. Paperwork Reduction Act 

The reporting requirements in the 

proposed rule are being submitted to 

OMB for review in accordance with the 

Paperwork Reduction Act of 1995 

(PRA).344 Under the PRA, an agency 

may not conduct or sponsor, and a 

person is not required to respond to, a 

collection of information unless it 

displays a valid control number 

assigned by OMB. Written comments 

and recommendations for the proposed 

information collection can be submitted 

by visiting www.reginfo.gov/public/do/ 

PRAMain. This particular document 

may be found by selecting ‘‘Currently 

Under Review—Open for Public 

Comments’’ or by using the search 

function. Comments are welcome and 

must be received by April 15, 2024. In 

accordance with requirements of the 

PRA, 44 U.S.C. 3506(c)(2)(A), and its 

implementing regulations, 5 CFR part 

1320, the following information 

concerns the collection of information 

as it relates to the proposed rule and is 

presented to assist those persons 

wishing to comment on the information 

collection. 

The PRA analysis included herein is 

for the sections of the proposed rule 

requiring RIAs and ERAs to (a) establish 

AML/CFT programs, to include riskbased procedures for conducting 

ongoing customer due diligence; (b) 

report suspicious activity and file CTRs; 

(c) maintain records of originator and 

beneficiary information for certain 

transactions; (d) apply information 

sharing provisions with the government 

and between financial institutions; and 

(e) implement special due diligence 

requirements for correspondent and 

private banking accounts and special 

measures under section 311 of the USA 

PATRIOT Act. 

Reporting and Recordkeeping 

Requirements: The proposed rule would 

require RIAs and ERAs to develop and 

implement AML/CFT programs, file 

SARs and CTRs, record originator and 

beneficiary information for transactions, 

respond to section 314(a) requests, and 

implement special due diligence 

measures for correspondent and private 

banking accounts. The AML/CFT 

programs must be written (first year 

only), and updated, stored, and made 

available for inspection by FinCEN and 

the SEC. The AML/CFT program must 

also be approved by the investment 

adviser’s board of directors or trustees. 

OMB Control Numbers: 1506–AB58. 

Frequency: As required; varies 

depending on the requirement. 

Description of Affected Public: 

investment advisers, as defined in the 

proposed rule. 

Estimated Number of Respondents: 

21,237 investment advisers. Of these, 

there are an estimated 15,391 SECregistered investment advisers and 

5,846 exempt reporting advisers. 

1,356,780 clients of investment advisers 

in the first year and up to 266,407 new 

clients in each subsequent year, 

although this figure will vary from year 

to year. 

Estimated Total Annual Reporting 

and Recordkeeping Burden: FinCEN 

estimates that during Year 1 the annual 

burden will be 7,142,302 hours for 

investment advisers and 508,792 hours 

for their clients. That burden will 

decrease after the first year because 

several information collection activities 

will only result in costs for these 

entities in Year 1. Specifically, 

investment advisers that do not already 

have a written AML/CFT program will 

have to develop one in the first year. In 

addition, entities that do not already 

conduct customer due diligence 

activities consistent with the 

requirements under the BSA will have 

to implement those information 

collection activities in the first year. 

FinCEN estimates that several of these 

costs will be incurred only in the first 

year of the regulation, but information 

collection activities related to 

understanding the nature and purpose 

of all existing customer accounts will 

likely be incurred over the first few 

years due to the large number of 

accounts—in this case, FinCEN assumes 

these costs will be spread over the first 

three years of the proposed regulation. 

Furthermore, FinCEN assesses that the 

information collection burden 

associated with customer due diligence 

will increase over time because the total 

number of clients is expected to grow 

each year. The number of clients and 

therefore the total costs associated with 

due diligence measures are expected to 

grow over time. Thus, there will be 

stepwise decrease in burden hours in 

Year 2 and Year 4, but a gradual 

increase in burden hours in Year 3 and 

Years 5 through 10 due to growth in the 

number of clients. In Year 10, FinCEN 

estimates the annual burden of the 

proposed regulation will be 5,395,622 

hours for investment advisers and 

99,903 hours for new clients, with no 

additional burden for existing clients. 

Estimated Total Annual Reporting 

and Recordkeeping Cost: As described 

in section 3, FinCEN calculated a 

weighted fully loaded hourly labor cost 

based on the roles, hourly wage rates, 

and burden distribution of staff 

involved in each information collection 

activity. FinCEN estimates that during 

Year 1 the annual cost will be 

$429,383,548 for investment advisers 

and $25,016,407 for their clients. In 

Year 10, FinCEN estimates the total cost 

of the proposed regulation will be 

$311,901,932 for investment advisers 

and $4,812,035 for their clients. 

Table C.1 reports the total number of 

investment advisers, burden hours, and 

costs by information collection activity. 

Burden hours and costs are calculated 

by multiplying the number of entities by 

the hours/costs per entity for each 

information collection activity. Burden 

hours and costs are summarized for 

Year 1 and Year 10. 

Table C.2 reports the total number of 

clients, burden hours, and costs by 

information collection activity. Burden 

hours and costs are calculated by 

multiplying the number of clients by the 

hours per entity. Burden hours and 

costs are summarized for Year 1 and 

Year 10. 


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Federal Register / Vol. 89, No. 32 / Thursday, February 15, 2024 / Proposed Rules 12179 

Table C.3 reports the total cost of 

information collection by year. 

Tables C.4 through C.10 report 

additional detail for each subset of 

entities, including information on the 

distribution of the information 

collection burden across different 

groups. These tables summarize the 

number of entities, burden hours per 

entity, total burden hours, average cost 

per entity, and total cost. 

Table C.11 reports the total cost of 

information collection for the customers 

of investment advisers. This table 

summarizes the number of customers, 

burden hours per customer, total burden 

hours, average cost per customer, and 

total cost. 

BILLING CODE 4810–02–P 


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Table C.1. Total Burden and Cost for Investment Advisers 

Develop AML/CFT Program 1,515,600 $103,897,022 0 $0 

Maintain and Update Written AML/CFT 8,607 $590,025 12,630 $865,809 Program 

Store the Written AML/CFT Program 717 $49,169 1,053 $72,151 

Produce Written AML/CFT Program 717 $49,169 1,053 $72,151 Upon Request 

Obtain Written Approval of AML/CFT 66,774 $11,513,265 25,260 $4,355,364 Program 

Customer Identification and Verification 472,719 $16,421,866 278,459 $9,673,426 

SAR Case Review and Filing (1010.320) 3,425,943 $212,068,631 3,425,943 $212,068,631 

CTR Recordkeeping and Reporting 0 $0 0 $0 (1010.315) 

Travel and Recordkeeping Requirements 1,037,850 $45,815,237 1,037,850 $45,815,237 (1010.410(a) through (c) and 1010.410(:f)) 

Information Sharing Arrangements 505,087 $30,862,402 505,087 $30,862,402 (1010.510) 

Special Due Diligence and Special 25,260 $3,043,491 25,260 $3,043,491 Measures (1010.610 and 1010.620) 

Section 311 Special Measures 83,028 $5,073,271 83,028 $5,073,271 

TOTAL 7,142,302 $429,383,548 5,395,622 $311,901,932 

Table C.2. Total Burden and Cost for Clients in 2022 dollars 

$25,016,407 $4,912,035 
12180 Federal Register / Vol. 89, No. 32 / Thursday, February 15, 2024 / Proposed Rules 


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2024 7,651,095 $454.4 

2025 5,772,942 $325.7 

2026 5,790,333 $326.4 

2027 5,336,657 $310.7 

2028 5,357,509 $311.5 

2029 5,380,341 $312.4 

2030 5,405,343 $313.3 

2031 5,432,721 $314.4 

2032 5,462,698 $315.5 

2033 5,495,524 $316.8 

TOTAL 57,085,163 $3,301.1 

EP15FE24.078</GPH>khammond on DSKJM1Z7X2PROD with PROPOSALS4

Table C.4. Total Burden and Cost for Dual Registrants 

Develo2 Written AML/CFT Program Maintain and Update Written AML/CFT 1 480 $68.55 $32,905 0 0 

Program 

Store the Written AML/CFT Pro!IT31ll 0.083 40 $5.71 $2,742 0 0 

Produce Written AML/CFT Program 0.083 40 $5.71 $2,742 0 0 

U2on Reguest 

Obtain Written Approval of AML/CFT 

I 0 I 0 I $0 I $0 I 0 I 0 

Program 

Customer Identification, Verification, and 0 0 $0 $0 0 0 

Recordkeeping 

SAR Case Review and Filing (1010.320) 0 0 $0 $0 0 0 

CTR Recordkeeping and Reporting 0 0 $0 $0 0 0 

1010.3152 

'ravel and Recordkeeping Requirements I 

1010.410{a2 through {c2 and 1010.410'"'' 0 I 0 I $0 I $0 I 0 I 0 

Information Sharing Arrangements 

I 0 I 0 I $0 I $0 I 0 I 0 

(1010.5102 

Special Due Diligence and Special 0 0 $0 $0 0 0 

Measures (1010.610 and 1010.620) 

Section 311 Special Measures 0 0 $0 $0 0 0 

TOTAL 1.167 560 $79.98 $38,389 0 0 

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Table C.5. Total Burden and Cost for Affiliated and Other RIAs 

Develo:Q Written AML/CFT Program 

Maintain and Update Written AML/CFT 1 6,034 $68.55 $413,641 0 0 Program 

Store the Written AML/CFT Program 0.083 503 $5.71 $34,470 0 0 

Produce Written AML/CFT Program 0.083 503 $5.71 $34,470 0 0 

U2on Reguest 

Obtain Written Approval of AML/CFT 

I 2 I 12,068 I $344.84 I $2,080,181 I 0 I 0 

Program 

Customer Identification, Verification, and 0 0 $0 $0 0 0 

Recordkeeping 

SAR Case Review and Filing (1010.320) 165.05 995,912 $10,216.73 $61,647,739 165.05 995,912 

CTR Recordkeeping and Reporting 0 0 $0 $0 0 0 

1010.3152 

Travel and Recordkeeping Requirements 

(1010.410(a) through (c) and I 50 I 301,700 I $2,201.22 I $13,318,357 I 50 I 301,700 

1010.410 

Information Sharing Arrangements 

I 24.33 I 146,827 I $1,486.84 I $8,911,611 I 24.33 I 146,827 

{1010.5102 

Special Due Diligence and Special 0 0 $0 $0 0 0 

Measures (1010.610 and 1010.620) 

Section 311 Soecial Measures 4 24136 $244.41 $1.474.785 4 24.136 

TOTAL 246.55 1.487.683 $14.580.02 $87.975.855 243.38 1.468.575 

EP15FE24.080</GPH>khammond on DSKJM1Z7X2PROD with PROPOSALS4

Table C.6. Total Burden and Cost for Affiliated RIAs with a Limited Number of AML/CFT M

Develo:Q Written AML/CFT Program 

Maintain and Update Written AML/CFT 0 0 $0.00 $0 1 576 

Program 

Store the Written AML/CFT Pro!IT31ll 0 0 $0.00 $0 0.083 48 

Produce Written AML/CFT Program 0 0 $0.00 $0 0.083 48 

U2on Reguest 

Obtain Written Approval of AML/CFT 

I 4 I 2,304 I $689.69 I $397,259 I 2 I 1,152 

Program 

Customer Identification, Verification, and 233.76 134,645 $8,120.57 $4,677,450 137.70 79,314 

Recordkeeping 

SAR Case Review and Filing (1010.320) 165.05 95,069 $10,216.73 $5,884,836 165.05 95,069 

CTR Recordkeeping and Reporting 0 0 $0 $0 0 0 

1010.3152 

Travel and Recordkeeping Requirements 

(1010.410(a) through (c) and I 50 I 28,800 I $2,201.22 I $1,211,358 I 50 I 28,800 

1010.410 

Information Sharing Arrangements 

I 24.33 I 14,016 I $1,486.84 I $856,422 I 24.33 I 14,016 

{1010.5102 

Special Due Diligence and Special 2 1,152 $240.97 $138,801 2 1,152 

Measures 0010.610 and 1010.620) 

Section 311 Special Measures 4 2,304 $244.41 $140 782 4 2 304 

TOTAL 603.14 347.410 $31.432.64 $18.105.202 386.25 222.478 

EP15FE24.081</GPH>khammond on DSKJM1Z7X2PROD with PROPOSALS4

Table C.7. Total Burden and Cost for Other RIAs with aLimitedNumber of AML/CFT Mea

Develo2 Written AML/CFT Pro 

Maintain and Update Written 0 0 $0.00 $0 1 8,345 

AML/CFT Program 

Store the Written AML/CFT Pro1m1m 0 0 $0.00 $0 0.083 695 

Produce Written AML/CFT Program 0 0 $0.00 $0 0.083 695 

U2on Reguest 

Obtain Written Approval of AML/CFT I 

Program 4 I 33,380 I $689.69 I $5,755,426 I 2 I 16,690 I 

Customer Identification, Verification, 

I 40.28 I 336,149 I $1,399.35 I $11,677,547 I 23.73 I 198,011 I 

and Recordkee2ing 

SAR Case Review and Filing 

I 165.05 I 1,377,342 I $10,216.73 I $85,258,598 I 165.05 I 1,377,342 I 

{1010.320} 

CTR Record.keeping and Reporting 

I 0 I 0 I $0 I $0 I 0 I 0 I 

1010.3152 

Travel and Record.keeping 

Requirements (1010.410(a) through (c) I 50 I 417,250 I $2,201.22 I $18,419,239 I 50 I 417,250 I 

and 1010.410 

Information Sharing Arrangements 

I 24.33 I 203,062 I $1,486.84 I $12,401,105 I 24.33 I 203,062 I 

{1010.5102 

Special Due Diligence and Special 2 16,690 $240.97 $2,010,921 2 16,690 

Measures 0010.610 and 1010.620) 

Section 311 Soecial Measures 4 33 380 $244.41 $2.039 623 4 33.380 

TOTAL 409.66 3.418,653 $24,711.42 $206,216,775 272.28 2,272,161 

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Table C.8. Total Burden and Cost for Affiliated and Other ERAs 

Develo:Q Written AML/CFT Program 

Maintain and Update Written AML/CFT 1 2,093 $68.55 $143,479 0 0 Program 

Store the Written AML/CFT Program 0.083 174 $5.71 $11,957 0 0 

Produce Written AML/CFT Program 0.083 174 $5.71 $11,957 0 0 

U2on Reguest 

Obtain Written Approval of AML/CFT 

I 2 I 4,186 I $344.84 I $721,756 I 0 I 0 

Program 

Customer Identification, Verification, and 0 0 $0 $0 0 0 

Recordkeeping 

SAR Case Review and Filing (1010.320) 165.05 345,450 $10,216.73 $21,383,613 165.05 345,450 

CTR Recordkeeping and Reporting 0 0 $0 $0 0 0 

1010.3152 

Travel and Recordkeeping Requirements 

(1010.410(a) through (c) and I 50 I 104,650 I $2,201.22 I $4,619,109 I 50 I 104,650 

1010.410 

Information Sharing Arrangements 

I 24.33 I 50,930 I $1,486.84 I $3,111,963 I 24.33 I 50,930 

{1010.5102 

Special Due Diligence and Special 0 0 $0 $0 0 0 

Measures (1010.610 and 1010.620) 

Section 311 Soecial Measures 4 8.372 $244.41 $511555 4 8 372 

TOTAL 246.55 516.029 $14.580.02 $30.515.987 243.38 509.401 

EP15FE24.083</GPH>khammond on DSKJM1Z7X2PROD with PROPOSALS4

Table C.9. Total Burden and Cost for Affiliated ERAs with a Limited Number of AML/CFT M

Develo:Q Written AML/CFT Program 

Maintain and Update Written AML/CFT 0 0 $0.00 $0 1 72 

Program 

Store the Written AML/CFT Pro1m1m 0 0 $0.00 $0 0.083 6 

Produce Written AML/CFT Program 0 0 $0.00 $0 0.083 6 

U2on Reguest 

Obtain Written Approval of AML/CFT 

I 4 I 288 I $689.69 I $49,657 I 2 I 144 

Program 

Customer Identification, Verification, and 5.27 379 $182.96 $13,173 3.10 223 

Recordkeeping 

SAR Case Review and Filing (1010.320) 165.05 11,884 $10,216.73 $735,604 165.05 11,884 

CTR Recordkeeping and Reporting 0 0 $0 $0 0 0 

1010.3152 

Travel and Recordkeeping Requirements 

(1010.410(a) through (c) and I 50 I 3,600 I $2,201.22 I $158,920 I 50 I 3,600 

1010.410 

Information Sharing Arrangements 

I 24.33 I 1,752 I $1,486.84 I $107,053 I 24.33 I 1,752 

{1010.5102 

Special Due Diligence and Special 2 144 $240.97 $17,350 2 144 

Measures (1010.610 and 1010.620) 

Section 311 Special Measures 4 288 $244.41 $17,598 4 288 

TOTAL 374.65 26375 $23,495.03 $1,691,642 251.65 18,119 

EP15FE24.084</GPH>khammond on DSKJM1Z7X2PROD with PROPOSALS4

Table C.10. Total Burden and Cost for Other RIAs with a Limited Number of AML/CFT Mea

Develo2 Written AML/CFT Pro 

Maintain and Update Written 0 0 $0.00 $0 1 3,637 

AML/CFT Program 

Store the Written AML/CFT Pro1m1m 0 0 $0.00 $0 0.083 303 

Produce Written AML/CFT Program 0 0 $0.00 $0 0.083 303 

U2on Reguest 

Obtain Written Approval of AML/CFT I 

Program 4 I 14,548 I $689.69 I $2,508,386 I 2 I 7,274 I 

Customer Identification, Verification, 

I 0.42 I 1,546 I $14.76 I $53,696 I 0.25 I 911 I 

and Recordkee2ing 

SAR Case Review and Filing 

I 165.05 I 600,287 I $10,216.73 I $37,158,241 I 165.05 I 600,287 I 

{1010.320} 

CTR Record.keeping and Reporting 

I 0 I 0 I $0 I $0 I 0 I 0 I 

1010.3152 

Travel and Record.keeping 

Requirements (1010.410(a) through (c) I 50 I 181,850 I $2,201.22 I $8,021,654 I 50 I 181,850 I 

and 1010.410 

Information Sharing Arrangements 

I 24.33 I 88,500 I $1,486.84 I $5,407,648 I 24.33 I 88,500 I 

{1010.5102 

Special Due Diligence and Special 2 7,274 $240.97 $876,419 2 I 7,274 I 

Measures 0010.610 and 1010.620) 

Section 311 Soecial Measures 4 14 548 $244.41 $888 928 4 

TOTAL 369.81 1.344.993 $23.326.83 S84.S391697 248.80 

EP15FE24.085</GPH>khammond on DSKJM1Z7X2PROD with PROPOSALS4

Table C.11. Total Burden and Cost for Clients 

Provide Customer Information 

Total 
Federal Register / Vol. 89, No. 32 / Thursday, February 15, 2024 / Proposed Rules 12189 

345U.S. Bureau of Economic Analysis, National 

Income and Product Accounts Tables, Table 1.1.9. 

Implicit Price Deflators for Gross Domestic Product. 

BILLING CODE 4810–02–C 

D. Unfunded Mandates Reform Act 

UMRA (section 202(a)) requires 

Federal agencies to prepare a written 

statement, which includes an 

assessment of anticipated costs and 

benefits, before issuing ‘‘any rule that 

includes any Federal mandate that may 

result in the expenditure by State, local, 

and Tribal governments, in the 

aggregate, or by the private sector, of 

$100 million or more (adjusted annually 

for inflation) in any one year.’’ The 

current threshold after adjustment for 

inflation is $176 million, using the 2022 

GDP price deflator.345 The proposed 

rule would result in an expenditure in 

at least one year that meets or exceeds 

this amount. 

The total annualized cost of the 

proposed rule is estimated to be 

approximately $1.0 billion to the private 

sector in the first year. The annualized 

cost of the proposed rule after the first 

year is estimated to be approximately 

$760 million to the private sector. The 

proposed rule does not foreseeably 

impose costs or other compliance 

burden that would impact any State, 

local, or Tribal government. FinCEN 

believes that the Impact Analysis 

provides the analysis required by 

UMRA. 

E. Questions for Comment 

FinCEN requests comment on all 

aspects of the regulatory analysis in 

section VI: 

• Do you agree with how FinCEN has 

characterized the extent to which 

different types of investment advisers 

are already implementing a significant, 

moderate, or a limited number of the 

AML/CFT requirements of the proposed 

rule? 

• For ERAs, do you agree with 

FinCEN’s assumption that the 

percentage of ERAs currently applying 

AML/CFT requirements would be the 

same as RIAs across all scenarios 

described in the Impact Analysis? 

• Do you agree with FinCEN’s 

assumption that the number of 

employees of an ERA is similar to the 

number of employees of an RIA with the 

same number of private funds? 

• Do you agree with FinCEN’s 

decision to not quantify the estimated 

benefits from the proposed rule? If no, 

what other data or methods may inform 

estimates of potential benefits from the 

proposed rule? 

• Do you agree that some RIAs would 

designate their existing compliance 

officer as the AML/CFT compliance 

officer? What other existing positions in 

an RIA or ERA may be designated as the 

AML/CFT compliance officer? 

• Do you agree with FinCEN’s use of 

the reported values for ‘‘Large 

Community Bank B,’’ from the 2020 

GAO BSA Report, as the entity for 

which the costs were assessed to be the 

most similar to the costs likely to be 

incurred by investment advisers covered 

by the proposed regulation? 

• Do you agree with FinCEN’s 

assumption that dual registrants covered 

by an existing AML/CFT program and 

entities that have a significant or 

moderate number of AML/CFT 

measures in place would only need to 

update their existing program to comply 

with the requirements of the proposed 

rule? 

• Do you agree with FinCEN’s 

estimates that it would take 

approximately 4 hours for a trustee or 

director to review and approve a written 

AML/CFT program the first year and 

approximately 2 hours each subsequent 

year to review the program? 

• Do you agree with FinCEN’s 

estimate that it would initially take an 

RIA or ERA that does not have an AML/ 

CFT program 50 hours to develop an 

AML/CFT training program, and that for 

entities that have an existing AML/CFT 

training program, it would take 

approximately 10 hours to review and 

update training materials? 

• Do you agree with FinCEN’s 

estimate that the average cost of 

independent testing of an adviser’s 

AML/CFT program would be 

approximately $17,000? 

• Do you agree with FinCEN’s 

assumption that of all the AML/CFT 

measures in the proposed rule, RIAs and 

ERAs are most likely to have some CDD 

measures in place, and that RIAs and 

ERAs would have to modify these 

existing procedures rather than develop 

new procedures? 

• Do you agree with FinCEN’s 

assumption that RIAs and ERAs would 

update customer information on 

existing accounts over the first three 

years after the promulgation of the 

proposed rule? 

• Do you agree with FinCEN’s 

assumption that unless an investment 

adviser is dual registrant or affiliated 

adviser, they are not currently filing 

SARs? 

• Do you agree with FinCEN’s 

estimate that RIAs are likely to file 

approximately 60 SARs per year? Do 

you agree with FinCEN’s assumption 

that ERAs would also file 60 SARs a 

year? If not, what other estimate for the 

number of SARs or an RIA or ERA 

would be reasonable? 

• Do you agree with FinCEN’s 

decision to attribute labor costs 

primarily to a compliance officer rather 

than a financial clerk or teller, due to 

the smaller size of investment advisers 

relative to banks and to avoid 

potentially underestimating the average 

hourly labor costs associated with these 

activities? 

• Do you agree with FinCEN’s 

estimate that since all investment 

advisers are required to report 

transactions in currency over $10,000 

on Form 8300, the incremental cost for 

RIAs and ERAs to use the CTR would 

be de minimis? 

• Do you agree with FinCEN’s 

decision to define the term small entity 

in accordance with definitions obtained 

from SEC rules implementing the 

Advisers Act in lieu of using the Small 

Business Administration’s definition? 

• Do you agree with how FinCEN has 

characterized the potential costs and 

benefits of imposing the AML/CFT 

requirements of the proposed rule to 

State-registered investment advisers? 

• Are there other significant 

alternatives that would minimize the 

impact of the proposed rule on small 

entities and still accomplish the 

objectives of the proposed rule? 

List of Subjects 

31 CFR Part 1010 

Administrative practice and 

procedure, Anti-money laundering, 

Banks, Banking, Brokers, Brokerage, 

Investment advisers, Money laundering, 

Mutual funds, Reporting and 

recordkeeping requirements, Securities, 

Suspicious transactions, Terrorist 

financing. 

31 CFR Part 1032 

Administrative practice and 

procedure, Anti-money laundering, 

Banks, Banking, Brokers, Brokerage, 

Investment advisers, Money laundering, 

Mutual funds, Reporting and 

recordkeeping requirements, Securities, 

Small business, Suspicious transactions, 

Terrorist financing. 

Issuance and Authority 

For the reasons set forth in the 

preamble, chapter X of title 31 of the 

Code of Federal Regulations is proposed 

to be amended as follows: 

PART 1010—GENERAL PROVISIONS 

■ 1. The authority citation for part 1010 

continues to read as follows: 

Authority: 12 U.S.C. 1829b and 1951–1959; 

31 U.S.C. 5311–5314 and 5316–5336; title III, 

sec. 314, Pub. L. 107–56, 115 Stat. 307 ; sec. 

701, Pub. L. 114–74, 129 Stat. 599; sec. 6403, 

Pub. L. 116–283, 134 Stat. 3388. 


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■ 2. Section 1010.100 is amended by: 

■ a. Removing the word ‘‘or’’ at the end 

of paragraph (t)(9); 

■ b. Removing the period at the end of 

paragraph (t)(10), and adding in its 

place ‘‘; or’’; and 

■ c. Adding paragraphs (t)(11) and 

(nnn). 

The additions read as follows: 

§ 1010.100 General definitions. 

* * * * * 

(t) * * * 

(11) An investment adviser. 

* * * * * 

(nnn) Investment adviser. Any person 

who is registered or required to register 

with the SEC under section 203 of the 

Investment Advisers Act of 1940 (15 

U.S.C. 80b–3(a)), or any person that is 

exempt from SEC registration under 

section 203(l) or 203(m) of the 

Investment Advisers Act of 1940 (15 

U.S.C. 80b–3(l), (m)). 

■ 3. Section 1010.410 is amended by: 

■ a. Removing the word ‘‘or’’ at the end 

of paragraph (e)(6)(i)(I); 

■ b. Removing the word ‘‘and’’ at the 

end of paragraph (e)(6)(i)(J) and adding 

in its place ‘‘or’’; and 

■ c. Adding paragraph (e)(6)(i)(K). 

The addition reads as follows: 

§ 1010.410 Records to be made and 

retained by financial institutions. 

* * * * * 

(e) * * * 

(6) * * * 

(i) * * * 

(K) An investment adviser; and 

* * * * * 

■ 4. Section 1010.605 is amended by: 

■ a. Removing the word ‘‘and’’ at the 

end of paragraph (c)(2)(iii); 

■ b. Removing the period at the end of 

paragraph (c)(2)(iv) and adding in its 

place ‘‘; and’’; 

■ c. Adding paragraph (c)(2)(v); 

■ d. Removing the word ‘‘and’’ at the 

end of paragraph (e)(1)(iii); 

■ e. Adding the word ‘‘and’’ at the end 

of paragraph (e)(1)(iv); and 

■ f. Adding paragraph (e)(1)(v). 

The additions read as follows: 

§ 1010.605 Definitions. 

* * * * * 

(c) * * * 

(2) * * * 

(v) As applied to investment advisers 

(as set forth in paragraph (e)(1)(v) of this 

section) means any contractual or other 

business relationship established 

between a person and an investment 

adviser to provide advisory services. 

* * * * * 

(e) * * * 

(1) * * * 

(v) An investment adviser except that 

an investment adviser shall not be 

considered a covered financial 

institution for the purposes of 

§ 1010.230. 

* * * * * 

■ 5. Section 1010.810 is amended by 

revising paragraph (b)(6) to read as 

follows: 

§ 1010.810 Enforcement. 

* * * * * 

(b) * * * 

(6) To the Securities and Exchange 

Commission with respect to brokers and 

dealers in securities, investment 

advisers, and investment companies as 

that term is defined in the Investment 

Company Act of 1940 (15 U.S.C. 80a–1 

et seq.); 

* * * * * 

■ 6. Add part 1032 to read as follows: 

PART 1032—RULES FOR 

INVESTMENT ADVISERS 

Subpart A—Definitions 

Sec. 

1032.100 Definitions. 

Subpart B—Programs 

1032.200 General. 

1032.210 Anti-money laundering/ 

countering the financing of terrorism 

programs for investment advisers. 

1032.220 [Reserved] 

Subpart C—Reports Required To Be Made 

by Investment Advisers 

1032.300 General. 

1032.310 Reports of transactions in 

currency. 

1032.311 Filing obligations. 

1032.312 Identification required. 

1032.313 Aggregation. 

1032.314 Structured transactions. 

1032.315 Exemptions. 

1032.320 Reports by investment advisers of 

suspicious transactions. 

Subpart D—Records Required To Be 

Maintained by Investment Advisers 

1032,400 General. 

1032.410 Recordkeeping. 

Subpart E—Special Information Sharing 

Procedures To Deter Money Laundering 

and Terrorist Activity 

1032.500 General. 

1032.520 Special information sharing 

procedures To Deter money laundering 

and terrorist activity for investment 

advisers. 

1032.530 [Reserved] 

1032.540 Voluntary information sharing 

among financial institutions. 

Subpart F—Special Standards of Diligence; 

Prohibitions, and Special Measures for 

Investment Advisers 

1032.600 General. 

1032.610 Due diligence programs for 

correspondent accounts for foreign 

financial institutions. 

1032.620 Due diligence programs for 

private banking accounts. 

Authority: 12 U.S.C. 1829b and 1951– 

1959; 31 U.S.C. 5311–5314 and 5316–5336; 

title III, sec. 314, Pub. L. 107–56, 115 Stat. 

307. 

Subpart A—Definitions 

§ 1032.100 Definitions. 

Refer to § 1010.100 of this chapter for 

general definitions not noted in this 

part. 

Subpart B—Programs 

§ 1032.200 General. 

Investment advisers are subject to the 

program requirements set forth and 

cross-referenced in this subpart. 

Investment advisers should also refer to 

subpart B of part 1010 of this chapter for 

program requirements contained in that 

subpart that apply to investment 

advisers. 

§ 1032.210 Anti-money laundering/ 

countering the financing of terrorism 

programs for investment advisers. 

(a) Anti-money laundering/countering 

the financing of terrorism program 

requirements for investment advisers. 

(1) Each investment adviser shall 

develop and implement a written antimoney laundering/countering the 

financing of terrorism (AML/CFT) 

program that is 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 (31 U.S.C. 5311, et seq.) and 

the implementing regulations 

promulgated thereunder by the 

Department of the Treasury. The 

investment adviser may deem the 

requirements in this subpart satisfied for 

any mutual fund (as defined in 31 CFR 

1010.100(gg)) it advises that has 

developed and implemented an AML/ 

CFT program compliant with the AML/ 

CFT program requirements applicable to 

mutual funds under another provision 

of this subpart. 

(2) Each investment adviser’s antimoney laundering/countering the 

financing of terrorism program must be 

approved in writing by its board of 

directors or trustees, or if it does not 

have one, by its sole proprietor, general 

partner, trustee, or other persons that 

have functions similar to a board of 

directors. An investment adviser shall 

make its anti-money laundering/ 

countering the financing of terrorism 

program available for inspection by 

FinCEN or the Securities and Exchange 

Commission (SEC). 

(b) Minimum requirements. The antimoney laundering/countering the 


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financing of terrorism program shall at 

a minimum: 

(1) Establish and implement policies, 

procedures, and internal 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 and 

implementing regulations in this 

chapter; 

(2) Provide for independent testing for 

compliance to be conducted by the 

investment adviser’s personnel or by a 

qualified outside party; 

(3) Designate a person or persons 

responsible for implementing and 

monitoring the operations and internal 

controls of the program; 

(4) Provide ongoing training for 

appropriate persons; and 

(5) Implement appropriate risk-based 

procedures for conducting ongoing 

customer due diligence, to include, but 

not be limited to: 

(i) Understanding the nature and 

purpose of customer relationships for 

the purpose of developing a customer 

risk profile; and 

(ii) Conducting ongoing monitoring to 

identify and report suspicious 

transactions and, on a risk basis, to 

maintain and update customer 

information. 

(c) Effective date. An investment 

adviser must develop and implement an 

anti-money laundering/countering the 

financing of terrorism program that 

complies with the requirements of this 

section on or before [DATE 12 MONTHS 

AFTER EFFECTIVE DATE OF FINAL 

RULE]. 

(d) Duty. The duty to establish, 

maintain, and enforce an anti-money 

laundering/countering the financing of 

terrorism program as required by this 

subpart must remain the responsibility 

of, and be performed by, persons in the 

United States who are accessible to, and 

subject to oversight and supervision by, 

FinCEN and the appropriate Federal 

functional regulator. 

§ 1032.220 [Reserved] 

Subpart C—Reports Required To Be 

Made by Investment Advisers 

§ 1032.300 General. 

Investment advisers are subject to the 

reporting requirements set forth and 

cross referenced in this subpart. 

Investment advisers should also refer to 

subpart C of part 1010 of this chapter for 

reporting requirements contained in that 

subpart that apply to investment 

advisers. 

§ 1032.310 Reports of transactions in 

currency. 

The reports of transactions in 

currency requirements for investment 

advisers are located in subpart C of part 

1010 of this chapter and this subpart. 

§ 1032.311 Filing obligations. 

Refer to § 1010.311 of this chapter for 

reports of transactions in currency filing 

obligations for investment advisers. 

§ 1032.312 Identification required. 

Refer to § 1010.312 of this chapter for 

identification requirements for reports 

of transactions in currency filed by 

investment advisers. 

§ 1032.313 Aggregation. 

Refer to § 1010.313 of this chapter for 

reports of transactions in currency 

aggregation requirements for investment 

advisers. 

§ 1032.314 Structured transactions. 

Refer to § 1010.314 of this chapter for 

rules regarding structured transactions 

for investment advisers. 

§ 1032.315 Exemptions. 

Refer to § 1010.315 of this chapter for 

exemptions from the obligation to file 

reports of transactions in currency for 

investment advisers. 

§ 1032.320 Reports by investment advisers 

of suspicious transactions. 

(a) General. (1) Every investment 

adviser shall file with FinCEN, to the 

extent and in the manner required by 

this section, a report of any suspicious 

transaction relevant to a possible 

violation of law or regulation. An 

investment adviser may also file with 

FinCEN a report of any suspicious 

transaction that it believes is relevant to 

the possible violation of any law or 

regulation, but whose reporting is not 

required by this section. Filing a report 

of a suspicious transaction does not 

relieve an investment adviser from the 

responsibility of complying with any 

other reporting requirements imposed 

by the Securities and Exchange 

Commission. 

(2) A transaction requires reporting 

under this section if it is conducted or 

attempted by, at, or through an 

investment adviser, it involves or 

aggregates funds or other assets of at 

least $5,000, and the investment adviser 

knows, suspects, or has reason to 

suspect that the transaction (or a pattern 

of transactions of which the transaction 

is a part): 

(i) 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; 

(ii) Is designed, whether through 

structuring or other means, to evade any 

requirements of this chapter or any 

other regulations promulgated under the 

Bank Secrecy Act; 

(iii) Has no business or apparent 

lawful purpose or is not the sort in 

which the particular customer would 

normally be expected to engage, and the 

investment adviser knows of no 

reasonable explanation for the 

transaction after examining the available 

facts, including the background and 

possible purpose of the transaction; or 

(iv) Involves use of the investment 

adviser to facilitate criminal activity. 

(3) More than one investment adviser 

may have an obligation to report the 

same transaction under this section, and 

other financial institutions may have 

separate obligations to report suspicious 

activity with respect to the same 

transaction pursuant to other provisions 

of this chapter. In those instances, no 

more than one report is required to be 

filed by the investment adviser(s) and 

other financial institution(s) involved in 

the transaction, provided that the report 

filed contains all relevant facts, 

including the name of each financial 

institution and the words ‘‘joint filing’’ 

in the narrative section, and each 

institution maintains a copy of the 

report filed, along with any supporting 

documentation. 

(b) Filing and notification 

procedures—(1) What to file. A 

suspicious transaction shall be reported 

by completing a Suspicious Activity 

Report (‘‘SAR’’) and collecting and 

maintaining supporting documentation 

as required by paragraph (c) of this 

section. 

(2) Where to file. The SAR shall be 

filed with FinCEN in accordance with 

the instructions to the SAR. 

(3) When to file. A SAR shall be filed 

no later than 30 calendar days after the 

date of the initial detection by the 

reporting investment adviser of facts 

that may constitute a basis for filing a 

SAR under this section. If no suspect is 

identified on the date of such initial 

detection, an investment adviser may 

delay filing a SAR for an additional 30 

calendar days to identify a suspect, but 

in no case shall reporting be delayed 

more than 60 calendar days after the 

date of such initial detection. 

(4) Mandatory notification to law 

enforcement. In situations involving 

violations that require immediate 

attention, such as suspected terrorist 


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financing or ongoing money laundering 

schemes, an investment adviser shall 

immediately notify by telephone an 

appropriate law enforcement authority 

in addition to filing timely a SAR. 

(5) Voluntary notification to the 

Financial Crimes Enforcement Network 

or the Securities and Exchange 

Commission. Investment advisers 

wishing to voluntarily report suspicious 

transactions that may relate to terrorist 

activity may call the Financial Crimes 

Enforcement Network’s Financial 

Institutions Hotline at 1–866–556–3974 

in addition to filing timely a SAR if 

required by this section. The investment 

adviser may also, but is not required to, 

contact the Securities and Exchange 

Commission to report in such situations. 

(c) Retention of records. An 

investment adviser shall maintain a 

copy of any SAR filed by the investment 

adviser or on its behalf (including joint 

reports), and the original (or business 

record equivalent) of any supporting 

documentation concerning any SAR that 

it files (or that is filed on its behalf) for 

a period of five years from the date of 

filing the SAR. Supporting 

documentation shall be identified as 

such and maintained by the investment 

adviser, and shall be deemed to have 

been filed with the SAR. An investment 

adviser shall make all supporting 

documentation available to FinCEN or 

any Federal, State, or local law 

enforcement agency, or any Federal 

regulatory authority that examines the 

investment adviser for compliance with 

the Bank Secrecy Act, upon request. 

(d) Confidentiality of SARs. A SAR, 

and any information that would reveal 

the existence of a SAR, are confidential 

and shall not be disclosed except as 

authorized in this paragraph (d). For 

purposes of this paragraph (d) only, a 

SAR shall include any suspicious 

activity report filed with FinCEN 

pursuant to any regulation in this 

chapter. 

(1) Prohibition on disclosures by 

investment advisers—(i) General rule. 

No investment adviser, and no current 

or former director, officer, employee, or 

agent of any investment adviser, shall 

disclose a SAR or any information that 

would reveal the existence of a SAR. 

Any investment adviser, and any 

current or former director, officer, 

employee, or agent of any investment 

adviser that is subpoenaed or otherwise 

requested to disclose a SAR or any 

information that would reveal the 

existence of a SAR shall decline to 

produce the SAR or such information, 

citing this section and 31 U.S.C. 

5318(g)(2)(A)(i), and shall notify 

FinCEN of any such request and the 

response thereto. 

(ii) Rules of construction. Provided 

that no person involved in any reported 

suspicious transaction is notified that 

the transaction has been reported, this 

paragraph (d)(1) shall not be construed 

as prohibiting: 

(A) The disclosure by an investment 

adviser, or any current or former 

director, officer, employee, or agent of 

an investment adviser of: 

(1) A SAR, or any information that 

would reveal the existence of a SAR, to 

FinCEN or any Federal, State, or local 

law enforcement agency, or any Federal 

regulatory authority that examines the 

investment adviser for compliance with 

the Bank Secrecy Act; or 

(2) The underlying facts, transactions, 

and documents upon which a SAR is 

based, including but not limited to, 

disclosures: 

(i) To another financial institution, or 

any current or former director, officer, 

employee, or agent of a financial 

institution, for the preparation of a joint 

SAR; or 

(ii) In connection with certain 

employment references or termination 

notices, to the full extent authorized in 

31 U.S.C. 5318(g)(2)(B); or 

(B) The sharing by an investment 

adviser, or any current or former 

director, officer, employee, or agent of 

the investment adviser, of a SAR, or any 

information that would reveal the 

existence of a SAR, within the 

investment adviser’s corporate 

organizational structure for purposes 

consistent with Title II of the Bank 

Secrecy Act as determined by regulation 

or in guidance. 

(2) Prohibition on disclosures by 

government authorities. A Federal, 

State, local, territorial, or Tribal 

government authority, or any current or 

former director, officer, employee, or 

agent of any of the foregoing, shall not 

disclose a SAR, or any information that 

would reveal the existence of a SAR, 

except as necessary to fulfill official 

duties consistent with Title II of the 

Bank Secrecy Act. For purposes of this 

section, ‘‘official duties’’ shall not 

include the disclosure of a SAR, or any 

information that would reveal the 

existence of a SAR, to a nongovernmental entity in response to a 

request for disclosure of non-public 

information or a request for use in a 

private legal proceeding, including a 

request pursuant to 31 CFR 1.11. 

(e) Limitation on liability. An 

investment adviser, and any current or 

former director, officer, employee, or 

agent of any investment adviser, that 

makes a voluntary disclosure of any 

possible violation of law or regulation to 

a government agency or makes a 

disclosure pursuant to this section or 

any other authority, including a 

disclosure made jointly with another 

institution, shall be protected from 

liability to any person for any such 

disclosure, or for failure to provide 

notice of such disclosure to any person 

identified in the disclosure, or both, to 

the full extent provided by 31 U.S.C. 

5318(g)(3). 

(f) Compliance. Investment advisers 

shall be examined by FinCEN or its 

delegates for compliance with this 

section. Failure to satisfy the 

requirements of this section may be a 

violation of the Bank Secrecy Act and of 

this part. 

Subpart D—Records Required To Be 

Maintained by Investment Advisers 

§ 1032.400 General. 

Investment advisers are subject to the 

recordkeeping requirements set forth 

and cross referenced in this subpart. 

Investment advisers should also refer to 

subpart D of part 1010 of this chapter for 

recordkeeping requirements contained 

in that subpart which apply to 

investment advisers. 

§ 1032.410 Recordkeeping. 

For regulations regarding 

recordkeeping, refer to § 1010.410 of 

this chapter. 

Subpart E—Special Information 

Sharing Procedures To Deter Money 

Laundering and Terrorist Activity 

§ 1032.500 General. 

Investment advisers are subject to the 

special information-sharing procedures 

to deter money laundering and terrorist 

activity requirements set forth and 

cross-referenced in this subpart. 

Investment advisers should also refer to 

subpart E of part 1010 of this chapter for 

special information sharing procedures 

to deter money laundering and terrorist 

activity contained in that subpart which 

apply to investment advisers. 

§ 1032.520 Special information sharing 

procedures to deter money laundering and 

terrorist activity for investment advisers. 

For regulations regarding special 

information sharing procedures to deter 

money laundering and terrorist activity 

for investment advisers, refer to 

§ 1010.520 of this chapter. 

§ 1032.530 [Reserved] 

§ 1032.540 Voluntary information sharing 

among financial institutions. 

For regulations regarding voluntary 

information sharing among financial 

institutions, refer to § 1010.540 of this 

chapter. 


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Subpart F—Special Standards of 

Diligence; and Special Measures for 

Investment Advisers 

§ 1032.600 General. 

Investment advisers are subject to the 

special standards of diligence; 

prohibitions; and special measures 

requirements set forth and cross 

referenced in this subpart. Investment 

advisers should also refer to subpart F 

of part 1010 of this chapter for special 

standards of diligence; prohibitions; and 

special measures contained in that 

subpart, which apply to investment 

advisers. 

§ 1032.610 Due diligence programs for 

correspondent accounts for foreign 

financial institutions. 

For regulations regarding due 

diligence programs for correspondent 

accounts for foreign financial 

institutions, refer to § 1010.610 of this 

chapter. 

§ 1032.620 Due diligence programs for 

private banking accounts. 

For regulations regarding due 

diligence programs for private banking 

accounts, refer to § 1010.620 of this 

chapter. 

Andrea M. Gacki, 

Director, Financial Crimes Enforcement 

Network. 

[FR Doc. 2024–02854 Filed 2–13–24; 8:45 am] 

BILLING CODE 4810–02–P 


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