U.S. Investment Advisers Remain Exposed as AML Rule Delayed Until 2028

The recent confirmation by the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) that implementation of the long-awaited Investment Adviser Anti-Money Laundering/Countering the Financing of Terrorism Program Rule (IA AML Rule) will be delayed until 2028 has raised renewed concern across the financial crime compliance community. AML professionals, risk officers, and regulators are sounding the alarm about the heightened vulnerabilities this delay introduces to the U.S. financial system. With investment advisers continuing to operate outside the full scope of the Bank Secrecy Act (BSA), experts are warning that this long-standing regulatory loophole remains a prime gateway for criminals and terrorist financiers seeking to exploit weak points in U.S. oversight.

Investment advisers play a central role in managing capital across complex vehicles such as hedge funds, private equity structures, and cross-border investment arrangements. Yet unlike banks, broker-dealers, and other covered financial institutions, both registered investment advisers (RIAs) and exempt reporting advisers (ERAs) have never been subject to the full range of BSA obligations. This has left a conspicuous regulatory asymmetry, one that has been identified by U.S. and international watchdogs as a major weakness in efforts to combat money laundering and terrorist financing.

Criminal organizations and corrupt actors have repeatedly targeted investment advisers for their ability to provide access to opaque ownership structures and to facilitate large-scale transactions across jurisdictions. Investment advisers frequently handle capital flows through offshore vehicles where beneficial ownership is deliberately concealed. Their cross-border footprint, coupled with a lack of mandated AML/CFT programs or suspicious activity reporting (SAR) requirements, has made this part of the financial services industry a particularly attractive vector for illicit finance. As FinCEN itself has noted in previous proposals, “the sector remains vulnerable to abuse by money launderers, including corrupt foreign officials, tax evaders, and entities seeking to bypass sanctions regimes.”

The consequences of delaying the IA AML Rule are not abstract. With the formal rule now postponed another two years—on top of nearly two decades of prior inaction—the U.S. has effectively left a significant portion of its financial sector unprotected. The absence of legal obligations for AML/CFT programs means RIAs and ERAs remain under no duty to apply systematic risk-based controls. Just as importantly, they are not required to file SARs, depriving law enforcement of a crucial stream of financial intelligence. Nor must they uniformly implement customer identification programs or beneficial ownership screening, leaving the door wide open for shell companies and anonymous entities to transact in the shadows. While some advisers—especially those tied to multinational financial institutions—have voluntarily adopted best practices, the lack of consistency across the sector allows regulatory arbitrage to flourish.

These regulatory weaknesses are not going unnoticed internationally. The Financial Action Task Force (FATF), the global standard-setter for AML/CFT measures, has repeatedly flagged the United States for its failure to close the gap around investment advisers. Other jurisdictions such as the United Kingdom and European Union have already imposed AML obligations on investment managers through directives such as AMLD 5 and AMLD 6. In contrast, the U.S. continues to delay. This not only undermines confidence in the integrity of U.S. financial markets but may also trigger retaliatory measures from allies or stricter conditions for cross-border cooperation. According to one senior compliance officer, “Every year this rule is delayed, the United States risks being seen as a safe harbor for dirty money.”

The potential harms are broad-ranging. “No mandatory AML/CFT programs, no SAR obligations, and no customer identification protocols mean this industry is still wide open for abuse,” said a regulatory advisor familiar with FinCEN’s process. Private markets—particularly private equity, venture capital, and real estate investment funds—are expanding rapidly, creating new entry points for the integration of illicit proceeds. With the growing use of digital assets and innovative financial instruments often managed by advisers, the opportunities for money laundering have never been greater. And the threat is not limited to white-collar crime. “The absence of SAR filing means links between financial flows and terrorist activity may go undetected for longer, potentially enabling future attacks,” the advisor added.

For AML professionals within the sector, this continued delay presents a difficult landscape. Many firms are caught in a limbo, uncertain whether to begin building formal compliance frameworks now or wait for legal compulsion. While some larger firms have taken proactive steps to adopt international standards voluntarily, many smaller advisers lack the expertise, budget, or incentive to do so. This patchwork approach creates inconsistency and undermines collective defenses. “Should we implement a full AML program now or wait until 2028? What due diligence standards are appropriate for high-risk clients?” These are the types of questions compliance officers are now grappling with, especially as their firms continue to engage in transactions that may involve sanctioned parties, PEPs, or opaque offshore structures.

Although the core legal framework for U.S. AML/CFT regulation—anchored in the Bank Secrecy Act and the USA PATRIOT Act—has proven durable for banks and broker-dealers, its limited application to investment advisers has long been seen as a vulnerability. FinCEN has floated proposals since at least 2003 to bring the sector under regulation, but successive rounds of delay have left the issue unresolved. FATF, for its part, continues to call for consistent application of preventive measures to all gatekeepers in the financial system, including investment advisers, accountants, and lawyers.

Looking ahead, stakeholders are bracing for several possible outcomes. FinCEN and the SEC could propose a phased rollout, imposing earlier deadlines on large or higher-risk firms while offering longer compliance windows for smaller entities. Industry groups may seek to fill the void with voluntary codes of conduct or standardized best practices. International pressure may accelerate U.S. action, especially if high-profile scandals link investment advisers to serious financial crimes. But regardless of how the process unfolds, there is little doubt that criminals will continue to exploit the current regulatory void. As one senior enforcement official put it bluntly: “Criminal networks move faster than legislation. Every year of delay is a year of opportunity for them.”

Ultimately, the delay of the IA AML Rule underscores a troubling reality: a key segment of the U.S. financial system remains outside the perimeter of core anti-financial crime measures. Without mandatory programs, transaction monitoring, SARs, or robust customer due diligence, investment advisers remain an enticing target for those seeking to launder illicit capital or fund terrorist operations. “While regulators debate costs and burdens,” said a leading AML consultant, “criminals are already capitalizing on the delay.”

For advisers, clients, and compliance officers, the message is clear. The risk environment is worsening, and waiting for regulation may not be a viable strategy. Voluntary compliance, risk mitigation, and a firm-wide culture of financial crime prevention are now essential—not just for regulatory preparedness, but for the long-term integrity of the industry itself.

By fLEXI tEAM