New Compliance Rules for Investment Advisers to Take Effect in 2026

The rule, effective Jan. 1, 2026, will add certain investment advisers to the list of businesses classified as “financial institutions” under the Bank Secrecy Act, requiring them to put in place a “risk-based and reasonably designed” program to comply with anti-money laundering and countering the financing of terrorism rules. Similar to the proposed version that Treasury’s Financial Crimes Enforcement Network released in February (see 2402130054), the final rule said those advisers will be required to file suspicious activity reports to the government, comply with certain recordkeeping requirements and “fulfill certain other obligations applicable to financial institutions subject” to the Bank Secrecy Act.

A separate but complementary rule released by FinCEN will require certain real estate information to be reported to the agency, including about land and building transfers “that are a high risk for illicit finance.” That rule takes effect Dec. 1, 2025.

Treasury Secretary Janet Yellen said the two rules will “close critical loopholes in the U.S. financial system that bad actors use to facilitate serious crimes like corruption, narcotrafficking, and fraud.” She said they will make it “harder for criminals to exploit our strong residential real estate and investment adviser sectors.”

The agency said it has found “numerous cases” where sanctioned parties and other criminals have “exploited the investment adviser industry to access the U.S. financial system and launder funds.” FinCEN specifically said people and companies from China and Russia are taking advantage of investment advisers to access sensitive U.S. industries, including by investing in startups involved in sensitive technology “with national security implications.”

“This rule aims to mitigate these risks,” FinCEN said in a fact sheet.

The rule carries over many of the proposals the agency issued in February. It will add “investment adviser” to the Bank Secrecy Act's definition of “financial institution,” making those advisers subject to certain of the law's reporting and compliance regulations, and defines those investment advisers as advisers registered with the SEC or that report to the SEC as “exempt reporting advisers.”

But FinCEN said it slightly narrowed its definition of “investment adviser” after it received public comments criticizing the proposed definition for being too broad. The new definition excludes investment advisers that register with the SEC “solely” because they are mid-sized advisers, multi-state advisers, or pension consultants, and it excludes SEC-registered advisers that aren’t required to report any “assets under management” to the SEC.

FinCEN also made changes in response to concerns from the financial advisory industry about how the new rules will apply to advisers organized or based outside of the U.S. (see 2405060037). For those "foreign-located investment advisers,” the final rule will only apply to their advisory activities that take place within the U.S., “including through the involvement of U.S. personnel of the investment adviser,” or to advisory activities that provide services to a U.S. person or a foreign-located private fund with an investor that is a U.S. person.

The agency also said it decided to eliminate a proposal that would have required an investment adviser’s AML/CFT program to be based in the U.S., where it would be under Treasury’s jurisdiction. Several commenters had criticized the proposal, saying foreign advisers without U.S.-based staff wouldn’t be able to implement an AML/CFT program located in the U.S. FinCEN said it may address this issue in a future rulemaking.

In its proposed rule, the agency said it planned to make the new regulations effective within 12 months of releasing a final rule. But it decided to extend that date until 2026 after taking into account the “new burdens” this will place on investment advisers. It said some may need to “develop, build, and integrate technology solutions to comply with certain requirements of” the rule.

It also said some advisers may need to renegotiate or revise contracts with banks, broker-dealers and others about how they will share compliance obligations. “Given that the effective dates of these agreements may vary throughout the industry, FinCEN wants to ensure advisers have at least a full calendar year to adjust any contractual arrangements with custodians, broker-dealers, fund administrators, or other service providers.”

The agency touted the rule as helping to “level the regulatory playing field” for people and businesses in the U.S. financial industry. It also said the rule will “bring benefits” to investors by improving the American financial system’s "transparency and integrity," and it will give law enforcement and national security agencies “highly useful” information.

The rule could also help the U.S. restrict Russian revenue for its military, FinCEN said. Investment advisers have served as an “entry point” into the U.S. financial industry for “billions of dollars ultimately controlled by sanctioned entities" like Russian oligarchs and their associates,” the agency said, including those who “help facilitate Russia’s illegal and unprovoked war of aggression against Ukraine.”