The US Treasury Department finalized new anti-money laundering rules affecting investment advisers registered with the Securities and Exchange Commission, although it removed some restrictions from its proposal earlier this year.

The department's Financial Crimes Enforcement Network (FinCEN) unveiled two final rules to combat money laundering: one for IAs and exempt reporting advisors, and one for residential real estate advisors. Treasury Secretary Janet Yellen said the rules would make it harder for criminals to “exploit” these sectors.

“The Treasury Department has worked hard to thwart efforts to use the United States to hide and launder ill-gotten gains,” Yellen said. “This includes addressing our biggest regulatory gaps, including these two new rules that close critical loopholes in the U.S. financial system that bad actors use to facilitate serious crimes like corruption, narcotics trafficking and fraud.” “

Rule completed adds certain RIAs to the definition of “financial institution” in the regulations implementing the Bank Secrecy Act. The rule mandates specific anti-money laundering (AML) and counter-financing of terrorism (CFT) standards, including requiring RIAs to report suspicious activity to FinCEN.

Treasury Department issued proposed rules in February and limited the scope of affected investment advisers; advisers that are “mid-sized,” “multi-state consultants,” and “pension consultants,” as well as VNRs that are not required to report assets under management (AUM) to the SEC, are exempt from the rule. As with the proposal, the rule does not apply to state-registered counselors.

However, affected persons must implement a “risk-based and reasonably designed” AML program, file suspicious activity reports with FinCEN, and maintain special records “such as those related to the transmission of funds”.

According to the Treasury Department, the new rule will help prevent criminals from laundering money through RIAs, “level the regulatory playing field” and bring U.S. rules “more in line with international AML standards /CFT”.

FinCEN is delegating its examination authority to the SEC, which it says is similar to the SEC's authority to examine eb/ds for compliance with existing Bank Secrecy Act regulations. Firms have until January 1, 2026 to comply. Since mutual funds are already under the BSA, RIAs will not have to meet the LPP/LFT requirements for those funds they advise.

The Treasury Department had long considered updating its LPP rules for advisers, including in 2003 with the help of broad authority derived from the Patriot Act. according to the Wall Street Journal. It also released a proposal in 2015, though the proposal earlier this year overtook earlier efforts, in part to address industry growth in the intervening years.

The Investment Advisers Association (IAA), the trade organization that represents RIAs, was critical of the proposed rule, saying that while it supports overall efforts to combat money laundering, regulations “must be risk-based and designed to fill identified gaps' rather than duplicating protections already in place.

The IAA made some suggestions, but based on initial impressions, the group believed the final rule was “largely adopted as proposed,” according to an IAA spokesman.

“The IAA believes the final rule is too prescriptive in some of its specific requirements, which will make it more difficult for advisers to adapt their programs accordingly,” they said. “The final rule will also impose unnecessary burdens on smaller firms.”

February proposal it was followed in May by a joint proposal with the Treasury and the SEC, detailing a new client identification program that requires RIAs to “implement reasonable procedures” to verify the identity of each client to deter potential money laundering. According to the SEC, the proposal for VNRs was “generally consistent” with the client identification program requirements for b/ds and mutual funds.

The Treasury Department and the SEC are currently “reviewing comments and working toward finalization” of the rule.