FinCEN’s AML rule for investment advisers turns RIAs and many exempt reporting advisers into full Bank Secrecy Act financial institutions by January 1, 2028. The rule requires a risk based AML program, ongoing monitoring, and SAR reporting, with the SEC acting as the primary examiner.
At the same time, the U.S. Treasury’s Investment Adviser Risk Assessment has highlighted how private funds and lightly regulated advisory structures attract illicit finance. Private funds, complex offshore vehicles, and cross border investor bases create routes for money laundering if monitoring is weak.
Regulators are also showing that AML failures are not theoretical. Recent SEC enforcement actions against firms with poor monitoring practices have resulted in multimillion dollar penalties and remediation requirements. For RIAs, the clear message is that AML is no longer optional, and transaction monitoring sits right at the center of the new expectations.
What FinCEN Actually Expects From RIA Transaction Monitoring
FinCEN’s framework mirrors expectations already in place for banks and broker dealers. For transaction monitoring, RIAs need to:
- Monitor transactions for patterns that could signal money laundering or terrorist financing
- Identify activity that appears to lack a clear business or investment purpose
- Investigate red flags using client information and other internal data
- File Suspicious Activity Reports when they know, suspect, or have reason to suspecta qualifying transaction involves illicit activity, structuring, or regulatory evasion
- Maintain records that show how decisions were made and how alerts were resolved
The expectation is not that every RIA will build a bank-style operations floor. The expectation is that each adviser designs a monitoring approach that reflects its risks, data, and scale, and that it can explain that design to examiners.
For a technical breakdown of scenarios, regulatory text, and 2028 readiness, Flagright’s guide to transaction monitoring for RIAs under the FinCEN AML rule walks through how monitoring ties into SAR duties and the new rule structure:
https://www.flagright.com/post/transaction-monitoring-for-rias-fincen-aml-rule
This article focuses on how RIAs can turn those expectations into a practical, sustainable program.
How Transaction Monitoring Differs For RIAs Compared To Banks
Banks see thousands of small dollar transfers and cash deposits each day. RIAs usually see fewer, higher value movements that sit inside an investment strategy. That difference changes how monitoring should work.
Typical RIA flows include:
- Capital calls and fund subscriptions
- Redemptions and distributions
- Transfers between related client accounts or entities
- Advisory fee debits
- Wires or ACH transfers to client, custodian, or third party accounts
For most RIAs, the main exposure comes from:
- Use of subscriptions and redemptions to layer funds
- Third party disbursements that do not match the investor profile
- Cross border payments with weak economic rationale
- Complex holding company or trust structures with opaque ownership
Because advisers rarely touch cash directly, understanding why a transaction is happening matters as much as the dollar amount. That is why close alignment between KYC, portfolio teams, and compliance is critical.
The Data Foundation Behind Effective RIA Monitoring
Monitoring starts with data, not with software logos. If the advisory firm cannot see what is happening, no tool will rescue the program. At a minimum, RIAs need:
- Position and transaction files from each custodian or administrator, ideally daily
- Details for each transfer, including originator, beneficiary, and any third party relationships
- Client risk profiles and onboarding data, including beneficial owners and jurisdictions
- Fee schedules and investment mandates, so alerts can be judged against the stated strategy
In practice, that usually means:
- Data feeds from custodians and fund administrators
- Daily or near real time exports of wires, ACH, journal entries, and security movements
- Standardized formats so rules can rely on consistent fields
- A single risk view per client or relationship
- Aggregation of multiple accounts, entities, and funds under one profile
- Flags for PEPs, sanctions, negative media, and higher risk geographies
- Clear links between client records and transaction data
- Account numbers and identifiers that tie back to specific relationships
- Ability to reconstruct the path of funds over time
Firms that sort this data architecture early will find rule tuning, case work, and reporting significantly easier.
How RIAs Should Work With Custodians And Administrators
Many RIAs assume that because their custodians have strong AML programs, their own responsibility is limited. FinCEN disagrees. The AML rule treats advisers as separate financial institutions with their own monitoring and SAR duties, even when they rely on qualified custodians to hold assets.
A practical partnership model includes:
- Written allocation of responsibilities
Service agreements that spell out which entity performs which controls, including sanctions screening, Travel Rule handling, and fraud checks. - Shared view of red flags
Typology exchanges that are specific to advisory accounts, such as unusual fund to fund transfers or redemptions into unrelated third party accounts. - Alert sharing protocol
When the custodian flags a transaction, the RIA receives enough detail to judge it against the client’s investment and risk profile. - Joint response for high risk events
Upfront decisions about how both parties respond if suspicious activity spans multiple institutions.
Regulators will ask not only what the custodian does, but also how the adviser relies on, tests, and supplements that work.
Building A Risk Based Rule Set For RIA Monitoring
Every firm’s rule library should reflect its own risk assessment, but most RIAs can build around five core themes.
1. Size and velocity rules
These rules focus on unusual amounts and speeds relative to the client:
- Single redemption or transfer above a set percentage of net asset value
- Multiple subscriptions or transfers within a short period that have no clear investment rationale
- Large increases in trading volume compared with the client’s normal pattern
2. Third party and off-pattern recipient rules
These rules watch where the money goes:
- New payees in higher risk jurisdictions
- Transfers to accounts not previously associated with the client
- Payments that do not match the expected destination for the investment strategy
3. Structuring and fragmentation rules
Monitoring should identify attempts to evade thresholds:
- Series of contributions just under an internal review level
- Multiple smaller wires that total an unusually large amount in a short time
4. Source and use of funds rules
For private funds and bespoke mandates, monitoring can ask:
- Does the funding account match onboarding information
- Does the destination of redemption proceeds align with the investor’s banking footprint
- Are proceeds being routed through layers of entities that do not appear in offering documents or KYC files
5. Behavioral anomaly rules
Basic analytics or machine learning can spot patterns that do not fit a client’s history:
- Shift from long term allocations to rapid in and out movements
- Sudden geographic change in payment destinations without a disclosed life event
The goal is not to flag everything unusual. The goal is to flag what is unusual and relevant to AML risk, using the client’s risk rating and profile as context.
Making Transaction Monitoring Work For Smaller RIAs
Smaller advisers sometimes assume meaningful monitoring is out of reach because they lack a large operations staff. A lean, focused program can still meet regulatory expectations.
Practical moves:
- Prioritize the top risks based on your assessment instead of copying a bank’s full rule set.
- Automate what machines do well such as ingesting data and running rules, while people focus on judgment and investigation.
- Translate real enforcement patterns into rules or checklists that fit your flow of funds.
- Use dynamic risk scoring so thresholds automatically adjust for higher and lower risk clients instead of multiplying rules.
- Plan for scale by choosing tools that can grow with transaction volume and product complexity.
How To Investigate Alerts And Decide When To File SARs
A clear end to end process helps the firm avoid both overreaction and underreaction.
1. Triage
- Rank alerts by severity using amount, client risk, and trigger type.
- Send high priority alerts to experienced investigators quickly.
2. Gather context
For each alert:
- Pull recent transactions and positions
- Review KYC data and any onboarding notes
- Check for sanctions, PEP hits, or negative media on the parties
3. Apply a reasonableness test
Ask three questions:
- Does the transaction have a clear business or investment purpose
- Is the size and pattern consistent with the client’s stated strategy and wealth profile
- Do external factors, such as negative news, heighten concern
4. Document and decide
- If concerns can be explained with credible evidence, close the alert and record the reasoning.
- If suspicion remains, escalate to the AML officer or committee for a SAR decision.
5. File and follow up
- When the decision is to file, use the BSA E-Filing system within the required time window.
- Consider restrictions, enhanced monitoring, or even exiting the relationship if the risk remains high.
During an SEC exam, the firm will need to show not only that it filed SARs when required, but that it had a disciplined method for investigating and reaching those decisions.
Where Technology Fits: Choosing AML Transaction Monitoring Software
Once data and basic rule design are in place, technology becomes the force multiplier. For most RIAs, manual spreadsheets are not sustainable when transaction volumes, client counts, and regulatory expectations grow.
Key capabilities to look for:
- Automated ingestion of custodian and administrator data with validation and normalization
- Configurable rule engine that supports risk based thresholds and client risk scores
- Behavioral analytics or machine learning to spot patterns that rules alone might miss
- Integrated case management and audit trails so investigators can track alerts from open to close
- SAR workflow support that pulls case data into filing drafts
Many advisers now turn to specialized AML transaction monitoring software and broader financial crime compliance solutions that already incorporate these capabilities and are tailored for financial institutions. Flagright’s platform is one example at this level, built for fast deployment and designed to support both monitoring and broader AML program needs in one environment. Selecting a tool like this lets RIAs focus energy on risk decisions and governance rather than on building infrastructure from scratch.
How To Tell If Your Monitoring Program Is Working
Once the system has run for several months, advisory firms can start measuring quality instead of only counting alerts.
Useful indicators:
- Percentage of alerts that lead to SAR filings
- Time from alert creation to final decision
- Distribution of alerts across client risk bands and products
- Number of issues discovered outside the system, such as staff tips or ad hoc reviews
Patterns in these metrics will show where rules are too loose, too tight, or misaligned with real risk. Periodic tuning and back testing signal to regulators that the program is active, not static.
Turning Monitoring Into A Source Of Confidence
Strong transaction monitoring is not only a regulatory shield. It can also become part of the firm’s story to clients, prospects, and investors.
- Institutional allocators increasingly include AML and governance questions in due diligence questionnaires. A thoughtful monitoring framework supports those conversations.
- High net worth clients care deeply about the safety of their assets. Knowing that the firm monitors unusual movements can reassure them that their accounts receive more than basic investment attention
- Boards and owners gain confidence that regulatory, reputational, and legal risks are under control.
For RIAs preparing for FinCEN’s 2028 deadline, transaction monitoring should be treated as a long term capability that protects the franchise, not as a short term project to satisfy one rule.
Firms that start now can tune their rules, test their workflows, and train their people before examiners and investors ask hard questions. The payoff is a clearer view of how money moves through the business and a stronger foundation of trust with everyone who relies on the adviser.
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