Why the delay matters to financial institutions
Even though the delay offers breathing room, it is still recommended that financial institutions begin preparing. Once implemented, the rule will influence how they work with investment adviser clients and bring greater alignment in compliance expectations across the industry. While banks and credit unions are not the primary targets of the rule, it will likely impact their compliance priorities, especially in customer due diligence (CDD) and coordinated financial crime prevention, assuming an effective date is eventually set.
This pause is a chance to get ahead of the ripple effects. Institutions should be ready for:
- Requests for closer collaboration from adviser clients
- More consistent application of CDD standards
- Heightened regulatory scrutiny once the rule takes effect
Acting now can help avoid last-minute disruptions, prevent operational bottlenecks, reduce compliance risk, and position banks and credit unions for smoother coordination with investment adviser clients when deadlines return.
We recommend that banks and credit unions prioritize the following actions for eventual compliance:
- Update policies and procedures: Review and revise AML/CFT policies to address the specific risks and compliance expectations tied to investment adviser relationships. Document procedures for onboarding these clients, including when to apply enhanced due diligence, how to verify beneficial ownership information, and escalation steps when unusual or suspicious activity is detected. Ensure these policies are consistent across business lines so retail and commercial teams follow the same standards.
- Evaluate technology readiness: Work with your AML software provider and core system vendor to confirm that existing platforms can handle expanded monitoring rules, higher volumes of alerts, and any additional data points associated with investment adviser accounts. Consider testing automated scenarios now to identify gaps in detection logic or reporting capabilities. Build in time for any needed upgrades, integrations, or workflow adjustments before the rule’s compliance date.
- Train compliance and frontline staff: Develop targeted training for employees on how investment adviser business models operate and the unique risks they may present. Include case studies on common red flags such as layered transactions, unexplained transfers between client accounts, or the use of complex corporate structures. Reinforce escalation and SAR filing procedures, especially as the FinCEN Investment Advisor Rule delay concludes and expectations increase.
- Refresh AML/CFT risk assessments: Update your institution’s AML/CFT risk assessment to reflect the potential impact of serving investment adviser clients. Consider how these relationships might influence customer risk ratings, monitoring thresholds, and the allocation of compliance resources. Document any changes in risk mitigation strategies so they can be communicated to regulators during examinations.
