Compliance
Deadline Approaching For Input On AML Rule Changes
FWR examines the continued changes and developments applying to anti-money laundering regulations and other important compliance challenges for wealth advisors in the US.
There’s a new deadline looming regarding the US government’s
Anti-Money Laundering Rule (AML) – October 22. That’s
when requests for comments on proposed amendments to the rule’s
filing requirements must be submitted to the Treasury
Department’s Financial Crimes Enforcement Network (FinCEN).
The rule, which applies to RIAs with more than $110 million in
assets, was originally due to take effect January 1, 2026, but in
July FinCEN announced that the enactment of the rule would be
delayed until January 2028.
The request for comments is part of a “broader review” of the AML
rule FinCEN is undertaking together with the Securities and
Exchange Commission, which will oversee the rule's
enforcement.
Wealth mangers should expect a “modified rule proposal,”
according to Evan Hall, co-chair of the Investment Adviser
Regulatory Compliance practice at Haynes Boone. The “biggest
complaint” from industry groups to date has centered on aligning
the Customer Identification Programs for RIAs with the AML rule,
Hall said.
Industry requests
Industry trade organizations are likely to ask FinCEN to
“reevaluate” the scope of which firms the AML rule will apply,
Hall said. “Advisory firms want more flexibility based on their
business,” he explained.
RIAs are likely to "push for two practical changes," said
Madhu Nadig, co-founder and chief technology officer of
Flagright, a monitoring platform for AML compliance. "First, a
data-sharing mandate with safe harbor so custodians and fund
administrators deliver standardized, machine-readable transaction
feeds, and allow joint suspicious activity reports (SARs) to
avoid duplicative work and make surveillance real."
Nadig also expects wealth management firms to request sector-specific, risk-based guidance that include typologies and thresholds tailored to advisory flows (subscriptions/redemptions, third-party wires, cross?custodian transfers) rather than bank-style rules. That combination "tightens AML outcomes while cutting false positives and paperwork,” he said.
For its part, the prominent industry trade group, The Investment
Company Institute (ICI) is also expected to request that the new
AML rule avoid “duplication of efforts” for record keeping,
noting in its request to delay compliance that “the vast majority
of advisory client assets are held in accounts of qualified
custodians.”
The ICI wants Suspicious Activity Reports (SAR) and Information
Sharing Obligations clarified as well. Additional guidance is
needed, the ICI maintained, “because there are circumstances in
which an advisor has limited access to relevant data and the
advisor’s obligations are unclear.” Industry groups have also
signaled they will request that smaller advisory firms with fewer
than 20 or 100 employees be exempt from the rule altogether as
well as firms that don’t manage client assets but only provide
advice.
They are also expected to seek carve-outs of reduced obligations
for fund administrators, custodians or intermediaries already
subject to AML regimes in order to avoid duplication.
Despite delay, regs remain
Firms are also likely to ask for further implementation delays to
give them more time to be able to put fintech systems, staffing
and training in place.
But RIAs shouldn’t relax their AML efforts because of the two
year – and possibly longer – delay.
“The regulations won’t go away,” Nadig reminded advisor. “They
will remain.”
Firms should think about what Nadig calls their “risk matrix” in
preparation when working with wealthy and foreign-based clients.
“If the money has unclear origins, or you don’t know where the
money is coming from, that’s a big AML risk,” he warned.
Firms should try to ascertain client risks and develop systems
that can detect red flags such as large money transfers, sudden
liquidity events and unusual asset allocations, Nadig said.
Hall also urged advisors to begin implementing AML security
measures sooner rather than later. “Advisors should expect a
reasonable degree of inquiry from the SEC,” he said. “There’s
going to be oversight even with the delay.”
Family Wealth Report has delivered a range of articles
on the compliance position faced by US-based advisors under the
AML rule:
https://www.familywealthreport.com/article.php/US-Treasury-Delays-AML%2C-CTF-Regulations-For-Two-Years
https://www.familywealthreport.com//article.php/RIAs-Face-%22Added-Burdens%22-As-Deadline-For-New-AML-Rule-Looms
https://www.familywealthreport.com//article.php/AML-Compliance-Cheat-Sheet-For-RIAs-