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Financial institutions and Registered Investment Advisors (RIAs) hoping for a compliance reprieve amid the federally mandated regulatory freeze are instead left navigating a new set of rules. Although restructuring at the Consumer Financial Protection Bureau (CFPB) and its loss of funding have resulted in paused enforcement of certain consumer protections, other regulatory bodies are doubling down on their demands.
The recent designation of cartels as terrorist organizations, as well as several expanded anti-money laundering (AML) policies under the Bank Secrecy Act (BSA) and Know Your Customer (KYC) requirements, is adding layers of complexity for many entities industrywide. With the evolving regulatory developments, financial leaders are racing to operationalize new controls around AML and BSA.
RIAs in particular will be tasked with new demands on governance, monitoring, reporting and technology as they will be required to comply with BSA and KYC regulations starting on January 1, 2026. While some uncertainty remains around governing powers and enforcement logistics, industry executives recognize the importance of proactively preparing for increased oversight — particularly in the following areas:
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Material Support and Terrorism Financing – The classification of drug cartels as terrorist organizations means institutions must ensure transactions are not inadvertently facilitating “material support.” This will require them to perform a deeper level of customer due diligence to ensure transactions are not connected to drug cartels designated as terrorist organizations or affiliated entities.
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AML Rules for Registered Investment Advisors (RIAs) – Beginning January 1, 2026, an expanded cohort of banking and financial service providers — including broker-dealers, RIAs and insurance providers — must comply with AML regulations and FinCEN reporting guidelines. This will be a herculean effort for large RIAs with exposure to international investors.
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Sanctions – The Trump Administration’s use of economic sanctions is expected to be very country-specific. The use of sanctions will likely shift focus from Russia to China. This will pose significant operational challenges for U.S.-based alternative investments, hedge funds and private equity funds with Chinese investors (particularly Chinese Sovereign Wealth).
These new and evolving requirements complicate compliance efforts, requiring financial institutions to develop robust internal controls while navigating potentially contradictory regulations.
Know Your Customer (KYC) Calls for Enhanced Diligence
At the core of these regulations lies a heightened expectation for banks to go beyond basic KYC measures, applying scrutiny down to the transactional level. To comply, they will need to verify not only the identities of their direct clients but also those of their clients’ customers.
The mandate requires the discovery of any potentially hidden risks such as shell companies beneficially owned by sanctioned persons or criminal organizations. This is of particular importance in preventing drug cartels designated as terrorists and the businesses they use to launder money from transacting through the bank. While this requirement might seem straightforward, unraveling complex ownership structures — oftentimes layered with multiple LLCs — presents a growing challenge.
Without robust KYC frameworks in place, institutions ranging from credit unions to broker-dealers risk compliance breaches that could lead to severe penalties and sanctions. Additionally, failure to adapt plans for adherence to AML/BSA obligations could hinder potential M&A activity.
Taming the Beast Requires Strategic Agility
Given the ongoing regulatory pivots, financial institutions cannot afford to be passive. To stay on top of the latest laws and guidance, they must proactively introduce agile processes that will help them mitigate risks and keep pace with evolving requirements.
While it may be feasible for some institutions to implement expanded internal due diligence, others might find it necessary to engage external expertise. The latter tends to offer greater flexibility, scalability and access to specialized regulatory knowledge — helping them navigate emerging compliance challenges with confidence.
Surviving the Storm Boils Down to Proactive Planning
Financial institutions shouldn’t underestimate the depth of regulatory complexity coming their way. A misstep in just one area — whether it’s KYC, AML or elsewhere — could unleash severe consequences. To mitigate their risk, regulated entities will need a compliance strategy that creates alignment across a wide array of existing and emerging regulations, as well as scalable support models that adapt to evolving guidance. Getting this right could help them avoid legal ramifications, fines or stalled M&A proceedings.
While compliance may seem like an overwhelming burden, those who embrace it strategically will find that it’s not the wolf it appears to be, but rather a sheep buried in wolf’s clothing — a challenge that, once understood and mastered, can provide a competitive advantage instead of a threat. By investing in the right internal controls, adaptable frameworks and expert guidance, financial institutions can turn regulatory pressure into a tool for long-term success rather than a risk to be feared.
Jon Glass and Carissa Rob are partners at SolomonEdwards in the Financial Crimes Advisory and Banking & Financial Services departments, respectively. The firm provides banking, financial services and office of the CFO consulting support for strategy, execution and solutions engineering.
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
