FinCEN Delays Implementation Date And Reopens AML/CFT Rule For Investment Advisers

FinCEN stated in the Order that the "illicit finance risks associated with investment advisers remain," in particular, those risks that the Treasury Department identified in its 2024 Investment Adviser Risk Assessment, but FinCEN is reviewing the Final Rule to ensure that the rule "is consistent with the Administration's deregulatory agenda and is effectively tailored to the diverse business models and risk profiles of the investment adviser sector—while still adequately protecting the U.S. financial system and guarding against money laundering, terrorist financing, and other illicit finance risks." This suggests that some version of the rule may well still go forward.

Background

Historically, SEC-registered investment advisers have not been subject to comprehensive AML regulation under the Bank Secrecy Act ("BSA") unless they also qualify as a broker-dealer or other BSA-regulated financial institution. Notwithstanding the absence of a formal requirement to date, many SEC-registered investment advisers have voluntarily adopted AML programs in line with industry expectations and investor demands. However, on August 28, 2024, FinCEN issued its Final Rule, establishing anti-money laundering/countering the financing of terrorism ("AML/CFT") requirements for Covered Advisers similar to those that apply to broker-dealers. The Final Rule, which was scheduled to take effect on January 1, 2026, required Covered Advisers to maintain written AML programs, perform customer due diligence, file Suspicious Activity Reports ("SARs") and other reports required of BSA-regulated financial institutions, and retain standard AML records.

In parallel, on May 13, 2024, FinCEN and the SEC proposed joint rulemaking to subject Covered Advisers to customer identification program ("CIP") obligations ("CIP Proposed Rule"). The proposed rulemaking has not been finalized.

FinCEN Postpones Effective Date of the Final Rule and Opens the Final Rule and the CIP Proposed Rule to Revision

On July 21, 2025, Treasury issued a press release announcing FinCEN's intention to delay the effective date of the Final Rule from January 1, 2026 to January 1, 2028, and to open a new rulemaking process to consider changes to the Final Rule, and to revisit the related CIP Proposed Rule. While Treasury's announcement did not offer specific details as to what changes Covered Advisers should expect in updated rulemaking, FinCEN appears to be working to address three primary concerns raised by industry trade groups since the Final Rule was finalized in August 2024. First, FinCEN stated its intent to undertake a broad review of the Final Rule, recognizing it "must be effectively tailored to the diverse business models and risk profiles of the investment adviser sector." Second, the extended implementation timeline is aimed to "ease potential compliance costs for industry and reduce regulatory uncertainty" while the review takes place. Finally, FinCEN appeared to heed industry concerns that the CIP Proposed Rule had not been finalized despite the Final Rule's approaching compliance date, which limited Covered Advisers' abilities to implement the interrelated rules concurrently. FinCEN's decision to evaluate the two rules together appears aimed at mitigating potentially duplicative implementation costs and inefficiencies had Covered Advisers first had to implement an AML/CFT program in accordance with the Final Rule that mentioned customer due diligence but did not have a specific customer identification requirement, and then later to implement a CIP program requirement.

The public will have the opportunity to submit comments relating to the revised Final Rule and CIP Proposed Rule during the upcoming rulemaking process.

Implications:

As FinCEN reevaluates the Final Rule and CIP Proposed Rule, Covered Advisers should continue to monitor regulatory developments and may wish to provide comments to FinCEN during the upcoming rulemaking process. To the extent they have not already started to do so, Covered Advisers may also wish to use the delay as an opportunity to consider how they might implement new AML obligations and implementations that may extend beyond the elements typically addressed in the voluntary AML programs that many Covered Advisers have implemented, including transaction monitoring and suspicious activity reporting obligations. Firms should preserve the progress made to date, particularly where it may prove valuable in meeting the expectations of institutional investors or counterparties in jurisdictions with more robust AML regimes. This is especially true for Covered Advisers that had already begun budgeting, planning, or implementing new AML frameworks in anticipation of the Final Rule. Covered Advisers that have made enhancements to their compliance programs should consider retaining those updates or unwinding them only after conducting a risk-based assessment tailored to their specific business model.

At the same time, FinCEN's Order and announcement come against the backdrop of the current administration's broader trend to reassess, and in some cases curtail, existing AML and anti-corruption initiatives to reduce the financial and operational burdens on U.S. businesses in favor of focusing on targeted requirements that prioritize combatting risks involving transnational criminal organizations. See here, here, and here for our discussion of FinCEN's narrowing of the scope of the Corporate Transparency Act's implementing regulations to focus on non-U.S. companies, DOJ's new FCPA investigations and enforcement guidelines, and DOJ's shift to focus on prosecuting transnational criminal organizations and cartels, respectively. Accordingly, though FinCEN appears to have framed the delay of the Final Rule's implementation date as a temporary reprieve while the Final Rule and CIP Proposed Rule undergo further review, it remains possible, particularly in light of the administration's shift toward a narrowed regulatory focus on corporate crime, that the Final Rule will be significantly scaled down or recalibrated to align with the current administration's priorities.

As the regulatory outlook continues to evolve, Covered Advisers should remain attentive to further guidance from Treasury and FinCEN and be prepared to adapt accordingly. Firms are encouraged to contact Crowell & Moring LLP with any questions or to discuss the topics covered in this alert.

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