Private Funds: Navigating the Finalized AML/KYC Regulations

The Financial Crimes Enforcement Network (FinCEN) has finalized a rule that brings private fund managers under the scope of the Bank Secrecy Act (BSA). Effective January 1, 2026, this rule mandates that certain investment advisers implement comprehensive anti-money laundering (AML) and know-your-customer (KYC) programs. For private funds, especially those previously operating with limited regulatory oversight, this represents a significant shift in compliance obligations.
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Understanding the Final Rule

FinCEN's final rule expands the definition of "financial institution" to include:
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• Registered investment advisers (RIAs): Those registered with the Securities and Exchange Commission (SEC), excluding certain categories such as midsize advisers, multi-state advisers, pension consultants and advisers with no assets under management.
• Exempt reporting advisers (ERAs): Including non-U.S. managers, private fund managers and venture capital advisers exempt under sections 203(l) or 203(m) of the Investment Advisers Act.
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These entities are now required to:
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• Develop and implement a written anti-money laundering/countering the financing of terrorism (AML/CFT) program.
• Conduct ongoing customer due diligence (CDD).
• File suspicious activity reports (SARs) with FinCEN.
• Maintain detailed records in compliance with the BSA.
• Adhere to information-sharing provisions under Section 314 of the U.S. Patriot Act.
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Notably, the rule does not currently impose customer identification program (CIP) requirements or mandate the collection of beneficial ownership information for legal entity customers. However, FinCEN has indicated that these aspects will be addressed in future rulemaking.
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Implications for Private Fund Managers‍

Private funds, including hedge funds, private equity firms and venture capital groups, must now:
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• Assess risk: Identify and document exposure to money laundering and other illicit finance risks across investment vehicles.
• Establish policies and procedures: Develop comprehensive AML compliance procedures, including red flags, escalation steps and internal controls.
• Train personnel: Ensure relevant staff understand their obligations under the new regulations.
• Leverage technology: Implement systems to automate customer onboarding, identity verification and ongoing transaction monitoring.
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For small and midsize funds, these requirements may pose significant challenges, especially for those with limited legal or compliance teams.
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Compliance Timeline‍

The final rule was published on August 28, 2024, with a compliance date set for January 1, 2026. This provides a window for private fund managers to develop and implement the necessary AML/CFT programs. However, given the complexity of these requirements, early action is advisable.
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How Agile Legal Can Assist

Agile Legal offers support to private fund managers in navigating these new compliance obligations, including:

• Drafting and reviewing AML/KYC policies.
• Conducting customer due diligence and investor verification.
• Assisting with SAR preparation and filing.
• Providing training and implementing compliance programs.
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Need assistance in preparing for the new AML/KYC requirements?

Contact Agile Legal to ensure your firm and your clients are ready for the Jan. 1, 2026 deadline.

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