What Private Fund Managers Need to Know About FinCEN’s New AML Rule

FinCEN’s new AML rule aims to close gaps in client due diligence in private funds and venture capital by requiring investment advisers—including RIAs and ERAs—to implement an AML/CTF program with specific reporting requirements, reflecting a wide and growing recognition of the need to strengthen oversight and compliance of investment advisers.

Announced on August 28, 2024 and with a compliance date of January 1, 2026, the new rule introduces significant updates to the BSA regulations, broadening the scope of financial institutions to include investment advisers. 

“Closed-end fund managers, like our clients, have not historically been subject to formal AML rules in the U.S.,” says Molly Yakubian, CEO of Vector AIS. “This may feel like unfamiliar territory for them. However, FinCEN first proposed these changes in 2015, so their implementation shouldn’t come as a complete surprise.” With the January 2026 compliance date approaching, Molly is urging firms to begin assessing their AML programs and engaging with service providers now. Implementing these processes takes time, and early preparation will position your firm to meet the new requirements smoothly.

The new rule is partially in response to a Department of Treasury risk assessment in February 2024, which identified significant vulnerabilities within the investment adviser sector—particularly RIAs, ERAs, and private funds. The assessment found that these groups faced four primary illicit finance risks: potential money laundering from foreign corruption, exposure to assets controlled by sanctioned entities—Russian oligarchs, for example, the use of private funds by foreign states such as Russia and China to access US technology with national security implications, and instances of advisers engaging in fraudulent activity. 

A number of these funds, often hedge and private equity, are unregistered with the SEC. They may be domiciled in jurisdictions outside the US and rely on intermediaries that may not fully disclose investor identities or sources of funds. This opens the door for investors to use complex legal structures and offshore entities, allowing sanctioned individuals to obscure their ownership of US assets and funnel their money into sensitive sectors like biotech and AI. 

Many firms have not yet adopted formal AML/KYC policies, often due to their size, perceived low risk, or cost constraints. With the new rule, however, inaction is no longer a viable option.

“Compliance isn’t just a regulatory obligation; it's an opportunity to demonstrate to investors and partners that your firm is committed to transparency and sound governance,” Molly continues. “Now is the time to review existing procedures, identify gaps, and take proactive steps to establish robust compliance practices.”

Also identified in the assessment were vulnerabilities in venture capital, which may be exploited by illicit actors looking for access to technology with national security implications. While RIAs are generally more regulated, those not affiliated with banks or broker-dealers face significant risks if their AML/CTF practices are less robust, and inconsistent practices across the industry create the opportunity for regulatory arbitrage.

Molly has observed that, over the past year, many Vector clients have started adopting basic AML policies, largely in response to more stringent bank requirements. The new FinCEN rule, however, requires a more comprehensive approach. “Firms need to ensure they understand the beneficial ownership of their LPs, conduct thorough due diligence, and integrate ongoing monitoring of sanctions lists into their processes,” she says. “These are not one-time measures; they need to be embedded into your firm’s operations well before the 2026 deadline.”

Are you included in the new definition?

While the expansion of the definition of “financial institution” reflects the understanding that investment advisers engage in activities similar to those of traditional financial institutions and should be subject to similar oversight, the rules excludes some types of RIAs, including:

• Mid-Sized Advisers: RIAs with assets under management (AUM) between $25 million and $100 million required to register with the SEC.
• Multi-State Advisers: RIAs required to register with the SEC because they would otherwise need to register in more than 15 states.
• Pension Consultants: RIAs primarily advising on pension plans and similar employee benefit plans.
• Advisers with Zero AUM: RIAs that report no assets under management on Form ADV.

Download our comprehensive whitepaper to learn how FinCEN's new AML/CTF rule affects your fund, and what you need to do before it comes into effect on January 1, 2026.