Transaction Monitoring for RIAs: Building a FinCEN AML Rule 2026 Compliant Program

Overview – FinCEN’s 2026 AML Rule and RIA Compliance

In August 2024, the Financial Crimes Enforcement Network (FinCEN) finalized a rule extending Bank Secrecy Act (BSA) anti-money laundering requirements to SEC-registered investment advisers for the first time. This FinCEN AML rule mandates that Registered Investment Advisers (RIAs) implement comprehensive, risk-based AML/CFT programs by January 1, 2026. By adding RIAs to the BSA’s definition of “financial institution,” the rule closes a regulatory gap and holds investment advisers to similar standards as banks and broker-dealers. Key compliance expectations include establishing a risk-based AML program, performing customer due diligence, monitoring transactions for suspicious activity, filing Suspicious Activity Reports (SARs) for qualifying transactions, and maintaining required records (e.g. wire transfer details under the Travel Rule). FinCEN has delegated examination authority to the SEC, meaning SEC examiners will review RIA AML compliance in exams, applying standards comparable to those used for broker-dealers. In short, U.S. investment advisers must quickly gear up for BSA compliance – and transaction monitoring is a centerpiece of these new obligations.

Why Transaction Monitoring is Essential in a Risk-Based AML Program

Under the BSA and FinCEN’s rule, RIAs are required to “monitor for transactions that could be indicative of criminal activities or the financing of terrorism” and file SARs as needed. This makes transaction monitoring an essential control within a risk-based AML program. A risk-based approach means each firm tailors its controls to its specific risk exposure. Regardless of size or business model, every RIA must be able to detect and report suspicious transactions – it’s not optional. Effective monitoring enables firms to identify potential money laundering techniques such as structuring (breaking up transactions to avoid reporting thresholds), layering (moving funds through a series of transactions to obscure their origin), or other unusual patterns of client activity. For example, multiple fund transfers just under $10,000 may indicate structuring, a rapid in-and-out redemption of an investment could signal layering, and an unexpected wire to a high-risk jurisdiction with no clear purpose is a classic red flag. Without an adequate monitoring system, an RIA can neither meet its SAR filing obligations nor protect itself from being used as a conduit for illicit funds. In the SEC’s view, an AML program is only as strong as its ability to detect and respond to suspicious activity – many enforcement cases (historically in the broker-dealer space) have cited failures in transaction monitoring as a root cause of compliance breakdowns. By implementing robust monitoring aligned to its risk profile, an RIA demonstrates it is reasonably designed to catch illicit finance attempts, as required under FinCEN’s rule.

Transaction Monitoring in the RIA AML/BSA Framework

In an RIA’s broader AML/BSA compliance framework, transaction monitoring plays the critical “detect” function alongside preventive measures like client due diligence. Think of the overall AML program as having several pillars – e.g. risk assessment, internal controls, training, independent testing, and customer due diligence – with transaction monitoring woven into the internal controls. It works hand-in-hand with your client risk scoring and onboarding controls. For instance, the firm’s risk assessment will identify what types of transactions pose higher risk (large third-party transfers, cross-border wires, etc.), and monitoring is the control that watches for those high-risk transactions in real time. Even though most RIAs don’t handle physical cash and often use qualified custodians to hold client assets, the RIA is still in a position to observe and know the purpose of transactions in client accounts FinCEN has made clear that RIAs cannot simply rely on custodians or assume “someone else is watching.” The RIA itself is accountable for reviewing transaction activity and identifying red flags, especially since the adviser often knows the client’s overall investment purpose and profile. In practice, RIAs will need to integrate transaction monitoring into their daily operations – for example, portfolio management or operations teams may need to feed transaction data to compliance, and compliance must have procedures to investigate alerts. Transaction monitoring results also feed back into the other AML program elements: if an alert uncovers alarming information about a client, the RIA might update that client’s risk rating (dynamic risk scoring) or even re-verify their information. In summary, a transaction monitoring program sits at the heart of an RIA’s AML framework as a key internal control – it operationalizes the firm’s ability to detect suspicious activity and triggers the investigation and reporting processes. Without it, the other pieces of the AML program (no matter how well-documented) would be ineffective at stopping illicit finance.

Best Practices for Configuring RIA Transaction Monitoring Rules

Designing a transaction monitoring system for an RIA requires tailoring it to the types of transactions and risks inherent in the investment advisory business. Unlike a bank, an RIA may not see daily retail deposits or withdrawals, but they do facilitate the movement of client assets – for example, capital contributions and redemptions in funds, inbound/outbound wire transfers or ACH, periodic advisory fee payments, and transfers between a client and third parties (such as wiring investment proceeds to a client’s external account or a third-party recipient at the client’s request). Here are some best practices for configuring and tuning monitoring rules to fit RIA transaction types:

Identify Relevant Transactions and Red Flags

Start by mapping out all the transaction types in your business and the money movement scenarios that could pose risks. Common RIA transactions include:

• Investor contributions (subscriptions) into funds or accounts
• Investor redemptions (distributions) or withdrawals of funds
• Advisory fee payments (often periodic, from client assets)
• Wires or ACH transfers into and out of client accounts (including to third parties)
• Transfers of assets between accounts (e.g. between two accounts of the same client, or between different clients if not careful)

For each category, consider what suspicious “AML transaction scenarios” might look like. FinCEN, SEC, and industry guidance provide many red flag examples. For instance: a pattern of multiple contributions just under $10,000 could indicate structuring to evade reporting; a sudden large wire to a high-risk country or unknown third-party is a classic warning sign; an early redemption shortly after a contribution (especially if the funds come out to a different bank account) may suggest layering of illicit funds. List out these scenarios relevant to your business. This exercise ensures your monitoring covers all the ways illicit actors might misuse RIA accounts, from using fund subscriptions and withdrawals as a laundromat, to abusing fee payments or third-party transfers to move money covertly.

Set Risk-Based Rules and Thresholds

With your scenarios in mind, establish rule-based alerts that will flag potentially suspicious transactions. Each rule should have a defined pattern and a threshold that triggers an alert. Avoid one-size-fits-all thresholds – calibrate them to what is unusual for your clients and products. FinCEN expects a risk-based AML program, so incorporate your client risk ratings into the rules. This is where dynamic risk scoring becomes powerful: higher-risk clients or accounts should have more sensitive alert triggers, while lower-risk clients can have higher thresholds to reduce false positives. For example, you might start with a baseline rule like “wire transfer over $50,000 to a foreign account triggers an alert.” Then apply risk-based tuning: for a high-risk client (say, a private fund with offshore investors or a client with high risk factors), set the threshold lower (e.g. $10,000) to cast a wider net, whereas for a low-risk client, you might only flag at a higher amount (e.g. $75,000). Similarly, rules for structuring might trigger if a client makes 5 deposits over $8,000 each in a month (low-risk client threshold), but for a high-risk client, the rule could trigger on 3 deposits over $5,000 each, since even smaller transactions by a high-risk client warrant scrutiny. Use known red flags from regulatory guidance as a starting point for rule logic (FinCEN advisories, SEC/FINRA red flag lists) and then tailor the thresholds to your firm’s normal transaction sizes and volumes. The table below provides a sample of monitoring rules customized to RIA workflows with illustrative risk-based parameters:

Sample Transaction Monitoring Rules for RIAs (illustrative thresholds for low-risk vs. high-risk situations):

These sample rules are for illustration; each RIA should customize scenarios and thresholds based on its own risk assessment. The goal is to flag the truly abnormal transactions (“SAR alerts for RIAs”) without drowning in false positives. It’s wise to start with a focused set of scenarios and expand over time. Document the rationale for each rule and threshold – for instance, note if a $5,000 alert threshold was chosen because your average client contribution is $500,000 (so $5k would be very small unless structuring). This documentation will help explain your risk-based approach to SEC examiners.

Leverage Automation and AI for Monitoring

Given the volume and complexity of transactions, automated transaction monitoring software is highly recommended for RIAs. Modern AML technologies can continuously scan transactions and apply your rules in near real-time, ensuring no significant event slips through the cracks. Many firms use software-based systems that come with pre-built typologies and allow custom rule configuration (often via no-code interfaces). For example, an advanced platform might let you drag-and-drop logic to create a rule – no coding required – enabling quick setup and adjustments as your business changes. AI-driven monitoring tools go a step further by performing behavior-based anomaly detection: they learn what “normal” transaction patterns are for each client or fund, and then flag outliers that don’t match the historical profile. This can uncover unusual activity patterns that rules didn’t anticipate. As FinCEN’s deadline nears, many investment advisers are turning to such solutions that offer rapid deployment, machine learning analytics, and easy integration with their operations. Remember that automation doesn’t eliminate the need for judgment – it simply augments your team’s ability to catch issues. Whichever system you choose, ensure it can handle your expected transaction volumes, allows risk-based rule settings (as discussed above), and can generate clear alert output for your team to review.

Ensure Robust Alert Investigation and SAR Processes

Detecting an alert is just the first step; what comes next is equally important. Every alert should be triaged and investigated to determine if the activity is explainable or truly suspicious. Establish a case management workflow so that when an alert fires, it is logged as a case, assigned to an analyst, and tracked through resolution. The investigator should examine the transaction details alongside KYC information: Who are the parties involved? Does the transaction make sense given the client’s known profile and investment objectives? If the alert involves a transfer, check if any names appear on sanctions or negative news screens. Often, a quick inquiry with the relationship manager or client (handled carefully, without “tipping off” the client) can clarify legitimate purpose vs. suspicious behavior. Document every step of the review, including any rationale for clearing the alert or escalating it. If an alert cannot be cleared with a reasonable explanation and you suspect a violation or illicit activity, your firm’s escalation procedures should kick in. Typically, this means the case is escalated to the AML Compliance Officer for potential SAR filing. FinCEN’s rule requires RIAs to file a SAR for any suspicious transaction (or attempted transaction) of $5,000 or more where the firm “knows, suspects, or has reason to suspect” the funds stem from illegal activity, evade regulations (e.g. structuring), or have no apparent lawful purpose. The SAR must be filed within 30 days of detecting the suspicious activity. Integrating your transaction monitoring with a case management and SAR reporting tool can greatly streamline this process – ideally, your system should let you convert an alert into a SAR filing draft, attach your investigation notes, and track submission deadlines. Ultimately, the effectiveness of your monitoring program will be judged not just on how many alerts you generate, but how well you handle them. Regulators will expect to see a clear audit trail from alert generation to investigation to SAR decision, demonstrating that your RIA is diligently complying with its reporting obligations.

Step-by-Step Guide: Implementing a Transaction Monitoring Program

For RIAs building out an AML transaction monitoring program (especially in light of the FinCEN 2026 mandate), here is a step-by-step approach to ensure all critical components are covered:

1. Assess your risk profile and data sources. Begin with a risk assessment of how money flows through your firm. Identify all sources of transaction data – e.g. custodial account statements, bank wire reports, internal accounting systems for fees. You’ll likely need to aggregate data from qualified custodians or fund administrators who execute transactions on your behalf. Ensure you can obtain timely reports of all deposits, withdrawals, wires, and transfers involving your clients. This data inventory is the foundation; without complete and accurate data, even the best monitoring rules will fail. Also, assess your client base and services to pinpoint high-risk areas (e.g. clients in certain countries, use of complex private investment vehicles, etc.) – this will inform your scenario design.
2. Define monitoring rules and risk-based thresholds: Using the risk assessment, develop a set of initial monitoring rules tailored to your activities. Cover the basics (large transfers, rapid inflows/outflows, third-party payments, etc.) and incorporate known AML red flag scenarios relevant to investment advisers (structuring, layering, high-risk geography transactions, unusual fee or securities movements). For each rule, set preliminary thresholds that balance sensitivity with practicality – leverage historical transaction data if available to see what “normal” ranges are. Importantly, assign risk-based criteria to each rule: decide if certain rules should trigger more easily for higher-risk clients or accounts. For example, you might have a rule “wire above X amount triggers alert,” and you specify X = $50k for standard clients but X = $20k for any client rated high-risk. If you have a client risk scoring system, integrate those risk scores here (many monitoring software solutions allow using risk scores as part of rule logic). Document the logic and parameters for each rule. It can be helpful to create a matrix or table (like the one above) listing the scenarios, triggers, and any differentiation for risk levels.
3. Select and implement a monitoring system for alert generation: With rules defined, decide on the technology or method to deploy them. Smaller RIAs with low volume might start with manual reviews of transactions against criteria (e.g. running Excel filters), but this quickly becomes unsustainable as you grow. In most cases, investing in an AML transaction monitoring system is worthwhile. Look for a solution that supports real-time or batch processing of transactions, allows you to easily configure custom rules (preferably with a no-code interface), and can generate alerts with details of why the rule fired. Many modern solutions come with libraries of rules and 100+ pre-defined typologies for money laundering, which you can tweak to fit your needs. During implementation, test your rules on historical data (“back-testing”) to see how many alerts would trigger and adjust thresholds to an appropriate level. Calibrate the system so that it’s neither blind to obvious suspicious activity nor triggering on every routine wire. As you turn the system live, ensure it’s ingesting data correctly from all sources (this may involve setting up data feeds from your custodian or portfolio management software). Aim for automated alert generation – this reduces the chance of human oversight and ensures timely detection (some tools even flag suspicious activity in near real-time and can send notifications to compliance).
4. Integrate case management and investigative workflow: Put in place a process (and tools) for managing alerts once generated. Ideally, your monitoring software will include an integrated case management module or at least export alerts to a case management system. Each alert should become a “case” that can be assigned to a compliance team member for review. Define the steps for investigation: gathering additional context on the transaction, checking related transactions, screening the client for any new negative news, and documenting findings. Set internal SLAs (service-level targets) for how quickly alerts must be reviewed, based on their severity. A good practice is to categorize alerts (e.g. high priority vs low priority) so that truly urgent issues (say, a match to a sanctions list or a clear fraud indicator) are addressed immediately. The case management system should allow you to log evidence and analysis, and ultimately record a disposition (e.g. “cleared – false positive due to known client activity” or “escalated – potential suspicious activity”). By integrating case management, you also facilitate SAR workflow automation – meaning if a case is escalated for a SAR, much of the information needed (transaction details, client info, analyst notes) is already compiled in one place. This greatly streamlines preparing the SAR filing for FinCEN.
5. Establish SAR escalation and filing procedures: Your program needs a clear protocol for what to do when an alert cannot be cleared as benign. Set criteria for escalation to the AML Compliance Officer or a committee – for example, any alert involving a high-risk client, any transaction over a certain amount that has no reasonable explanation, or any “SAR alert” where suspicion is evident should be elevated. The responsible compliance officer will then decide whether the activity reaches the threshold for SAR filing (remember the standard: if you know, suspect, or have reason to suspect the transaction or pattern involves illicit activity or lacks lawful purpose). The rule of thumb is: when in doubt, file the SAR – but your internal review should gather enough information to make an informed decision. If a SAR is warranted, follow FinCEN’s requirements for completing and submitting it. SARs for RIAs are filed via the BSA E-Filing system, using the standard FinCEN SAR form. Ensure you include all pertinent details in the SAR narrative (who, what, when, where, and why of the suspicious activity) and avoid generic language. Timeliness is critical: you must file within 30 calendar days of concluding that the activity is suspicious. Have a calendar or tracking in your case management system to monitor this deadline. Also implement procedures for any required notifications or confidentiality – e.g. never inform the client that a SAR was or will be filed (tipping off is prohibited). Finally, your program should call for periodic reviews of whether additional steps are needed after a SAR (such as reviewing other clients for similar activity, or reconsidering the relationship with the client in question). SAR filing is both an obligation and a feedback mechanism – patterns that lead to SARs might indicate gaps in your controls or emerging risks that you need to address in your risk assessment and monitoring rules.
6. Train staff and test the program: (Ongoing step) Once the monitoring system and procedures are in place, train all relevant staff on their roles – from operations personnel who might spot unusual transactions in real time, to compliance investigators who handle alerts. Training should include examples of the red flags and suspicious activity patterns that the rules are designed to catch. This helps reinforce the human element of monitoring (employees are often the first line of defense if something looks off). Additionally, conduct a pilot or dry run of the end-to-end process. For example, run a set of historical transactions through the monitoring system to generate sample alerts, then go through the motions of investigating and (if appropriate) drafting a mock SAR. This end-to-end testing will reveal any kinks in the workflow. Regulators appreciate when firms test and fine-tune their AML program components. In fact, FinCEN and SEC expect a “continuous tuning” approach – you should periodically evaluate the performance of your rules and adjust as needed. If certain rules are yielding too many false positives, refine them; if you encounter a suspicious incident that your rules missed, create a new scenario to cover it. Treat your transaction monitoring program as a living system that evolves with the risks. By following these steps and regularly improving the process, an RIA can build a robust monitoring program that meets FinCEN’s standards and effectively safeguards against financial crime.

Choosing the Right AML Software Solution for RIAs

Implementing an effective transaction monitoring program is much easier with the right technology partner. Many RIAs are now shopping for AML compliance software to help meet the 2026 requirements. When evaluating solutions, consider factors like ease of deployment, customization, intelligence, and workflow integration. A number of established vendors serve the financial industry, but for investment advisers in particular, we recommend Flagright as an ideal AML software solution. Flagright stands out for several reasons:

• Rapid setup with no-code configuration: Flagright offers a modern, no-code platform that allows RIAs to deploy the software quickly and start monitoring almost immediately. You don’t need an army of IT staff or months of development – rules and workflows can be configured through an intuitive interface. This low implementation overhead is crucial for firms racing against the FinCEN deadline. The system also integrates smoothly with existing RIA workflows and data sources, minimizing disruption to your business.
• AI-native, real-time monitoring: Flagright combines advanced AI technology with real-time transaction monitoring capabilities. The platform comes with a suite of built-in AML scenarios and a customizable risk scoring engine, which together enable automated risk detection across your transactions. Machine learning algorithms help identify anomalous patterns or behaviors that static rules might miss, providing an extra layer of defense. For example, Flagright can learn a client’s typical contribution and withdrawal pattern and then automatically flag when that client does something significantly out of the ordinary – all without you having to pre-define every possible scenario.
• Customizable risk scoring and alert thresholds: As emphasized earlier, dynamic risk scoring is key for RIAs, and Flagright excels here. You can tailor the risk model to your specific criteria (incorporating factors like client type, geography, source of funds, etc.) and the software will continuously update each client’s risk profile in real time as new transactions or alerts occur. These risk scores directly feed into the monitoring rules – a high-risk client’s transactions will automatically be held to more stringent thresholds, for instance. This kind of personalized, risk-based alerting is built-in, aligning perfectly with the risk-based AML program approach FinCEN expects.
• Integrated case management and SAR workflow automation: Flagright’s platform doesn’t stop at flagging transactions – it also streamlines the entire investigative process. It features an integrated case management tool that logs alerts, tracks investigations, and can even generate SAR filings or reports for regulators. Compliance teams can manage everything in one place: when an alert triggers, it becomes a case, you can add notes/evidence, escalate it, and if needed, the system helps prepare the SAR with the click of a button. This end-to-end automation – from detection to SAR e-filing – saves time and reduces the chance of human error. It ensures that SAR alerts for RIAs are handled consistently and efficiently, with full audit trails for examiners to review.
• Regulatory compliance and reporting: Flagright is designed to meet U.S. regulatory requirements out-of-the-box. It keeps audit logs and can produce the reports you’ll need for SEC examinations or independent testing audits. The software is continually updated to reflect the latest FinCEN guidance and typologies, meaning your monitoring program stays current as new threats emerge. Additionally, features like automated CTR/SAR reporting (if applicable) and information sharing support (314(a) scanning, etc.) help cover all BSA obligations in one solution.

In summary, Flagright offers a comprehensive, AI-enhanced AML solution tailored for the needs of investment advisers. Its real-time transaction monitoring, dynamic risk scoring, and automated case/SAR management align perfectly with the challenges RIAs face in implementing an AML program from scratch. And importantly, it provides these benefits with a user-friendly, no-code approach – allowing firms to get up and running quickly without hefty infrastructure costs. As RIAs gear up for the FinCEN AML rule deadline in 2026, leveraging such a technology can turn what might seem a daunting compliance task into a streamlined, effective process.

Conclusion

Designing and implementing an AML transaction monitoring program for RIAs is a complex task, but it’s one that U.S. investment advisers must undertake now to meet the upcoming FinCEN requirements. By focusing on U.S. compliance expectations – grounded in FinCEN’s rule, the Bank Secrecy Act, and SEC’s standards – RIAs can build a program that not only “checks the box” for regulators but actually protects their business from being misused by criminals. The keys to success include embracing a risk-based approach, integrating dynamic risk scoring to tailor your alerts, and diligently monitoring the transactions that flow through your clients’ accounts. With well-configured rules targeting scenarios like structuring, layering, and other AML transaction patterns, your firm will be equipped to spot red flags early and take action (including SAR reporting) as required. Coupling these best practices with a capable AML technology solution – such as Flagright for a fast, AI-driven implementation – can significantly ease the burden. RIAs that take proactive steps now to establish robust transaction monitoring and AML compliance programs for investment advisers will not only meet the FinCEN AML Rule of 2026, but also foster greater transparency and integrity in the investment advisory industry. Compliance isn’t just a regulatory obligation; it’s good business practice to know your clients and keep illicit activity out of your portfolios. By following the guidance outlined above, RIAs can confidently navigate FinCEN’s new AML era and maintain the trust of regulators and investors alike.

Schedule a demo to see how Flagright can help you implement a compliant, risk-based AMLtransaction monitoring program.