We blogged last year about the Final Rule issued by the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) extending Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) requirements to certain investment advisers. The Final Rule, which was set to become effective as of January 1 of next year, was the result of years of effort to bring investment advisers within the scope of the Bank Secrecy Act. The Final Rule required certain investment advisers to: (1) develop and maintain an AML/CFT compliance program; (2) file Suspicious Activity Reports (SARs) and Currency Transaction Reports (CTRs); (3) comply with the Recordkeeping and Travel Rules; (4) respond to Section 314(a) requests; and (5) implement special due diligence measures for correspondent and private banking accounts.
But this week, in yet another significant regulatory scale-back in the anti-money laundering space, the Treasury Department announced that FinCEN will postpone the effective date of the Final Rule two years, to January 1, 2028 – and, more portentously, that it intends to “revisit the scope” of the Rule “at a future date.” The stated basis for this institutional about-face is “recogni[tion]…that the rule must be effectively tailored to the diverse business models and risk profiles of the investment adviser sector.” The Department’s press release further stated that postponing the effective date “may help ease potential compliance costs for industry and reduce regulatory uncertainty while FinCEN undertakes a broader review” of the Rule. (While the cost point is undoubtedly accurate, as firms will now be able to put off outlays for implementation of AML/CFT compliance programs, it is unclear how going back to the drawing board on the Rule will reduce regulatory uncertainty.)
This is the latest move by the Treasury Department to pause or delay enforcement of financial regulations. We blogged in March about the Department’s announcement that it would not enforce penalties or fines associated with the Corporate Transparency Act’s beneficial ownership information reporting requirements, and that it would issue a proposed rulemaking to narrow the scope of the rule to only apply to foreign reporting companies. At that time, the Department similarly spoke of “ensuring that the rule is appropriately tailored to advance the public interest.” We’ve also blogged on Administration efforts to broadly limit regulation of digital assets.
It remains to be seen whether FinCEN’s “broader review” of the Rule will indeed lead to “effective[] tailor[ing]” to the unique aspects of the investment adviser sector, or whether the AML/CFT requirements for the sector will simply die on the vine over the next few years. We will continue to monitor developments on this front.
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