What the IA AML Rule delay means for community banks

How community banks can proactively meet regulatory expectations

With investment advisers remaining outside the BSA framework for an additional two years, community and regional banks can proactively strengthen controls to compensate for the continued regulatory gap. Institutions can take these practical steps to meet supervisory expectations and mitigate elevated money-laundering and terrorist-financing risk exposure during the delay.

1. Enhance onboarding controls and periodic reviews

Onboarding processes must be rigorous, risk-based and repeatable. Stronger onboarding processes create a solid foundation for downstream monitoring and risk assessment.

Banks should consider:

• Implementing specialized onboarding questionnaires for adviser-related clients.
• Requiring updated adviser disclosures, such as Form ADV, fund organizational documents and AML attestations, where available.
• Shortening periodic review cycles for complex fund structures or accounts with elevated transactional risks.

2. Strengthen customer due diligence for adviser-related entities

As investment advisers are not subject to AML program or SAR requirements, banks must ensure enhanced visibility into adviser-managed clients and structures.

Banks can:

• Expand EDD for private funds, SPVs, feeder funds and non-U.S. investors tied to adviser‑managed accounts.
• Request detailed information that advisers are not yet obligated to collect under the BSA including ownership, investment strategies, and sources of funds.
• Reassess risk ratings for fund-linked accounts, especially those with high-risk jurisdictions, complex structures, or rapid cash movement.

3. Tune transaction monitoring (TM) for fund specific typologies

Fund flows linked to adviser activity often exhibit distinct patterns. Banks should ensure transaction monitoring (TM) models are tailored to detect unusual activity for advisors by:

• Adjusting thresholds and scenarios to detect anomalies in capital calls, redemptions, distributions, or circular transfers.
• Adding typology‑specific red flags related to private funds, alternative investment vehicles and cross border investor activity.
• Incorporating behavioral baselining for funds with predictable cash cycles.

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4. Reinforce SAR escalation and documentation practices

Since advisers do not file SARs, banks should have robust investigative and reporting processes that include:

• Thoroughly documenting investigative steps, particularly when dealing with opaque structures or limited adviser transparency.
• Filing SARs when adviser-linked activity appears suspicious, even if the adviser does not identify the behavior as reportable.

Strengthening narratives and rationales to clearly articulate patterns and concerns in the absence of adviser corroboration.

5. Improve governance, oversight and staff training

A strong governance framework signals to examiners that the institution understands and is actively managing the regulatory gap.

Banks should consider:

• Increasing board-level visibility into risks associated with adviser-linked accounts and private fund flows.
• Updating AML risk assessments to reflect the continued absence of adviser AML obligations through 2028.
• Training frontline, EDD and AML staff on fund-specific red flags, investor structures and monitoring challenges unique to adviser managed entities.

Monitoring challenges and opportunities ahead

While investment advisers remain outside core BSA/AML obligations, banks — particularly community and regional institutions — must continue to shoulder full responsibility for risk management, monitoring, and reporting.

Adviser-managed structures continue to present transparency challenges. Fund and transaction flows remain complex and beneficial ownership and cross-border issues continue to test the limits of monitoring systems. Banks should be able to demonstrate that they understand these risks and are actively compensating for the extended period in which advisers remain outside the BSA.

At the same time, the delay creates a meaningful strategic opportunity. Institutions that modernize controls now, enhance due diligence, strengthen risk-based monitoring and upgrade governance and documentation practices will enter 2028 from a position of strength rather than reaction. The two-year window offers time to build a more resilient and future-ready AML framework before advisers become subject to BSA requirements.