MFA Backs Proposed Delay on Implementation of Investment Adviser AML Rule

The Managed Funds Association ("MFA") supported a recent FinCEN proposal to delay implementation of AML/CFT and Suspicious Activity Reporting ("SAR") requirements for investment advisers and exempt reporting advisers.

The 2024 Final Rule extends Bank Secrecy Act ("BSA") obligations — such as AML program requirements and SARs filings — to Registered Investment Advisers ("RIAs") and Exempt Reporting Advisers ("ERAs"). Under this designation, RIAs and ERAs are to be treated as "financial institutions" for purposes of the BSA, aligning them with other covered entities such as banks, broker-dealers, and mutual funds. (See previous coverage.)

In a comment letter, the MFA supported FinCEN’s proposal to delay implementation of the AML/CFT Program Rule for SEC-registered and exempt reporting investment advisers until at least January 1, 2028. The Association emphasized that, without further clarity, advisers risk expending significant resources on programs that may not align with regulatory expectations or operational realities. The MFA said additional time is necessary for FinCEN to issue clarifying guidance and align the rule with other pending regulatory initiatives to ensure consistent and effective compliance.

The MFA also urged FinCEN to:

1. Define Advisory Scope. The MFA asked FinCEN to distinguish "advisory services" covered by the rule from non-advisory activities such as administrative functions, pre-engagement communications, and research not tied to assets under management.
2. Clarify Third-Party Reliance. The MFA asked FinCEN to clarify the permissible scope of delegating AML functions to third parties, including allowing reliance on summaries or certifications for due diligence, permitting risk-based (rather than fixed) monitoring, and recognizing indirect delegation through private fund agreements.
3. Provide Guidance on Risk-Based Application. The MFA asked FinCEN to clarify expectations for implementing risk-based procedures, particularly how advisers can leverage existing low-risk relationships and rely on investor-provided information absent red flags.
4. Limit Special Due Diligence. The MFA asked FinCEN to ensure that special due diligence requirements for correspondent and private banking accounts apply only in limited circumstances relevant to private fund structures.
5. Tailor SAR Obligations. The MFA urged FinCEN to tailor suspicious activity reporting obligations for advisers that do not custody investor funds, including clarifying that automated monitoring is not always required, and issuing red-flag guidance for training purposes.
6. Align SAR Sharing Rules. The MFA asked FinCEN to align SAR sharing and confidentiality provisions with bank and broker-dealer practices, allowing advisers to share reports with affiliates, private funds, and their agents.
7. Confirm Limited Applicability of Transfer Rules. The MFA asked FinCEN for confirmation that the funds transfer and travel rules have minimal relevance to advisers, as fund transactions are typically processed through custodial financial institutions already subject to Bank Secrecy Act obligations.