SEC Enforcement Action Signals Increased Scrutiny of AML Procedures for Investment Advisers

In a recent enforcement action, the U.S. Securities and Exchange Commission (SEC) charged a registered investment adviser (RIA), with misrepresenting its anti-money laundering (AML) procedures to investors.

The SEC alleged that between October 2018 and January 2022, the registered investment adviser misrepresented its AML program, failing to conduct due diligence as described in its own policies. Specifically, the firm neglected to verify the beneficial owners and source of wealth of its investors. This negligence resulted in the registered investment adviser accepting funds from an entity owned by an individual publicly linked to suspected money laundering activities.

The SEC further highlighted that the registered investment adviser did not adopt or implement written policies and procedures reasonably designed to ensure the accuracy of its offering documents and other materials shared with investors. This oversight had significant repercussions, including the freezing of fund assets by a foreign court. Ultimately, the registered investment adviser agreed to settle the SEC’s charges and paid a $150,000 civil penalty. 

Heightened SEC Scrutiny

This latest enforcement action highlights the SEC’s growing focus on ensuring investment advisers maintain robust compliance frameworks to deter illicit financial activity. AML programs for investment advisers can no longer be treated as a mere regulatory best practice. Instead, investment advisers must implement procedures that actively detect and prevent money laundering risks.

The increased focus from the SEC aligns with broader regulatory efforts aimed at strengthening the financial system.

FinCEN’s New AML Rule for RIAs and ERAs

The Financial Crimes Enforcement Network (FinCEN) will implement new AML requirements for registered investment advisers and exempt reporting advisers (ERAs) effective January 2026. This rule aligns with the Bank Secrecy Act (BSA) and is designed to close gaps in AML compliance across the financial services sector. Our briefing on the proposed changes can be found here.

RIAs and ERAs must meet the following key requirements under the new rule:

• Implement a risk-based and reasonably designed Anti-Money Laundering / Countering the Financing of Terrorism (AML/CFT) program, which must designate an AML/CFT officer and include ongoing training for appropriate persons;
• File certain reports, such as Suspicious Activity Reports (SARs), with FinCEN;
• Maintain certain records, such as those relating to the transmittal of funds (i.e., comply with the Recordkeeping and Travel Rules);
• Fulfill certain other obligations applicable to financial institutions subject to the BSA and FinCEN’s implementing regulations, such as special information-sharing procedures; and
• Perform independent testing of the AML program by a person who is not involved in the operation and oversight of the AML/CFT program (i.e., a qualified person within the firm or a third party).

 Preparing for the New Regulatory Landscape

The recent SEC enforcement action, combined with the upcoming FinCEN rule, serve as a wake-up call for RIAs and ERAs to evaluate and enhance their AML compliance frameworks.

To prepare for these changes RIAs and ERAs should:

• Evaluate potential AML risks facing your firm to ensure the current policies and procedures are effective in identifying, monitoring and reporting any incidents.
• Leverage AML technology solutions to streamline monitoring, reporting, and compliance activities.
• Ensure all firm employees understand the importance of AML compliance and know how to identify and report red flags.
• Engage a reputable regulatory compliance provider to review the current policies and procedures, test their effectiveness and suggest ways to improve them.

How Petra Can Help

Petra Funds Group’s compliance team has decades of experience managing SEC regulatory compliance programs for private fund advisers, as well as programs for AML/KYC compliance. The group’s expertise enables them to provide insight and guidance on a wide range of regulatory compliance services, from investment adviser registration to ongoing compliance support to performing SEC mock examinations. Learn more about Petra’s comprehensive compliance offering and contact Jesse Brown with questions.