Understanding Suspicious Activity Reports (SARs): A Guide for RIAs

Suspicious activity reports (SARs) are a cornerstone of anti-money laundering (AML) and countering the financing of terrorism (CFT) compliance programs. Starting next year, registered investment advisers (RIAs) will be required to navigate the nuances of SARs to stay compliant with the new U.S. Financial Crimes Enforcement Network (FinCEN) regulation while addressing the risks of money laundering, fraud, and other illicit activities.

Below, we explore key aspects of SAR requirements. 

What are SARs?

SARs are reports filed with FinCEN when financial institutions, including RIAs, identify transactions or activities that appear suspicious or inconsistent with normal client behavior. These reports enable regulatory authorities to detect and combat financial crime, from money laundering to insider trading.

When must a SAR be filed?

The SAR filing obligation is limited to transactions involving at least $5,000 in funds or other assets; however, other types of suspicious activity can be reported too.

RIAs are required to file a SAR if they know, suspect, or have reason to suspect a transaction involves:

• Illegal activities such as money laundering, terrorist financing, or fraud
• Evasion of regulatory requirements, such as structuring transactions to avoid reporting thresholds.
• No apparent lawful business purpose, especially transactions that are inconsistent with the client’s stated objectives

Examples of suspicious activities include:

• Unusual wire transfers that do not align with a client’s investment objectives.
• Transactions involving third parties without a plausible relationship to the client.
• Investors requesting non-public technical information, raising concerns about illicit technology transfer.
• Requests to obscure an investor’s participation to avoid government notifications.
• Withdrawals or transfers involving individuals linked to U.S. sanctions or fraud.

SAR filing requirements for RIAs

The FinCEN Form 111 – Universal SAR is filed electronically through the Bank Secrecy Act (BSA) E-Filing System. Investment advisers must file a SAR within 30 days of detecting facts that may warrant a SAR. If no suspect is identified initially, the filing can be delayed up to 60 days to identify a suspect.

The SAR filing should include:

• A detailed description of the suspicious transaction
• The nature of the suspicion
• Supporting evidence or observations
• Specific details such as transaction dates, account numbers, and identities of involved parties

If RIAs delegate AML program responsibilities to third-party administrators, they remain legally obligated to:

• File SARs when they possess relevant information, regardless of outsourcing arrangements.
• Ensure robust monitoring and oversight of service providers to identify suspicious transactions.
• Collaborate on SARs when multiple financial institutions are involved; only one SAR needs to be filed, provided all parties coordinate effectively

Our guidance

To help ensure SAR compliance, RIAs should:

• Develop comprehensive policies: Include steps for identifying suspicious activities, determining filing decisions, and adhering to reporting deadlines
• Provide staff training: Equip employees with the tools to recognize red flags and escalate concerns appropriately
• Leverage technology: Use transaction monitoring systems to identify anomalies in client behavior
• Document findings: Maintain records of all investigations, even if a SAR is not filed

Suspicious activity reports are essential tools to fight financial crime. By implementing robust policies, leveraging technology, and fostering collaboration with service providers, RIAs can navigate FinCEN’s SAR requirements effectively.

Learn more about the global AML landscape

We recently held a webcast to discuss SARs requirements and the new FinCEN Rule in the U.S. as well as other global AML regulations. Click here to watch the webcast on demand.

How we help

Our AML and Financial Crimes practice supports investment advisers and broker-dealers in meeting regulatory obligations and managing risk. We offer:

• AML risk assessments and policy development: Risk assessment of the adviser’s compliance with relevant AML and sanctions regulations.
• AML program reviews: An independent review of the adviser’s AML program, aligning with FinCEN and SEC AML rules and industry best practices.
• Outsourced managed services: A full-service, single-vendor solution supported by our team of compliance professionals, including Certified Anti-Money Laundering Specialists (CAMS) and other industry-leading financial crimes experts.
• ComplianceAlpha^® regulatory technology: Our platform serves as a command center that automates data screening, enables continuous risk surveillance, maintains detailed records for regulatory reporting, and helps ensure compliance with global AML standards, including OFAC, FinCEN, the USA PATRIOT Act, MLD5, FINRA, SEC, and BSA.

Whether launching, growing, or safeguarding your business, we provide end-to-end compliance support. Contact us today to get started.

Contact us