RIAs Face “Added Burdens” As Deadline For New AML Rule Looms

The US Treasury's FinCEN has enacted a new Anti-Money Laundering Rule, significantly impacting Registered Investment Advisers (RIAs) managing over US$110 million in assets. White & Case partner Joel Cohen emphasizes that the primary challenge for RIAs will be the new requirement to file Suspicious Activity Reports (SARs) and understanding strict limitations on their dissemination. Compliance necessitates RIAs designate a responsible person, provide supplemental training, and implement risk-based customer due diligence, underscoring the need for a tailored approach to these new operational burdens.

Analysis

The U.S. Treasury's Financial Crimes Enforcement Network (FinCEN) has introduced a new Anti-Money Laundering Rule that will materially increase the compliance burden for Registered Investment Advisers (RIAs) managing over US$110 million in assets. According to legal analysis by White & Case, the most significant operational challenge will be the new requirement to file Suspicious Activity Reports (SARs), compounded by strict limitations on sharing the content of these reports both internally and externally. This rule necessitates a tailored compliance approach, as RIAs are cautioned against simply adopting the comprehensive AML controls of other financial institutions. To comply, affected firms must undertake specific structural changes, including appointing a designated compliance officer, implementing targeted personnel training, and establishing risk-based customer due diligence protocols. These measures represent a notable increase in operational complexity and resourcing requirements for the wealth management sector.

Key Decisions for Investors

• Investors with exposure to the wealth management industry should anticipate a rise in operating expenses and potential margin compression for RIAs with over $110 million AUM as they absorb the costs of new compliance infrastructure and personnel.
• When conducting due diligence on RIAs, institutional allocators should now explicitly assess the robustness of their AML programs, focusing on the designated compliance personnel, training frameworks, and the sophistication of their risk-based client screening.
• The introduction of SARs filing obligations creates a new vector of legal and reputational risk; investors should monitor for any regulatory actions or disclosures related to AML compliance within the RIA sector as a potential indicator of governance quality.