The Hidden Pressure Point in the Private Markets: AML/KYC

With expectations around due diligence, sanctions controls, and beneficial ownership transparency rising at a time when the regulatory landscape itself is unsettled, the private markets have entered a new era. Rules are shifting, timelines are evolving, and yet the operational burden on GPs is only increasing.

This tension between uncertain regulations and rising expectations is reshaping how GPs need to think about AML/KYC. It is no longer enough to rely on manual processes or fragmented systems. As the private markets expand into wealth and global channels, the demands on LP onboarding and ongoing due diligence have reached a point where legacy approaches cannot keep up.

Recent regulatory shifts have created genuine uncertainty for private fund managers. The Investment Adviser AML/CFT Rule, finalized in 2024 with an expected 2026 start date, is now proposed to be delayed to 2028 while the Treasury Department reconsiders key elements, including potential CIP obligations. At the same time, the Corporate Transparency Act has been reshaped by court decisions and an interim rule that altered which entities must report beneficial ownership information.

The result is a landscape where GPs are not yet required to implement the same level of AML/KYC as covered institutions. But that means that while the new rules are pending, they must operate without a clear rulebook—even as LPs, financial institutions, and regulators expect them to uphold regulatory-grade standards.

Regulators are already active in the private markets, and GPs cannot rely on pending AML/KYC rules as a shield. Enforcement is happening today under existing authorities. In 2025, GVA Capital, a venture capital firm, received a $216 million penalty from the Office of Foreign Assets Control (OFAC) for Russia-related sanctions violations and inadequate responses to OFAC subpoenas. The scale of the penalty underscored that regulators expect real controls, not future intentions.

Other OFAC and SEC actions highlight similar issues across the industry, including weak sanctions screening, limited visibility into complex ownership structures, inconsistent documentation of beneficial owners, and poor monitoring of investor updates. The message is clear. Even without a finalized rule, regulators expect private fund managers to understand their investors and maintain AML/KYC programs that work in practice.

Private market GPs face three pressures that increasingly shape how AML/KYC technology must be designed. These forces are redefining what effective compliance looks like and determining which solutions can scale with the business.

• Regulatory expectations are rising even before rules are finalized: GPs need technology that can adjust as requirements evolve. A rigid system becomes a liability because when regulations shift, the firm is forced to reinvest. Flexibility and adaptability are now essential.
• The LP experience cannot suffer because of compliance: LPs expect onboarding to be fast, intuitive, and transparent. A slow or fragmented AML/KYC process frustrates investors and can slow fundraising. GPs know that LPs will choose managers who make it easy to commit capital.
• Operations must scale without expanding headcount or relying on disconnected workflows: As firms grow across strategies and channels, AML/KYC must scale with them. Technology must automate routine work, integrate across systems, and support growth without proportional increases in people.

Addressing today’s AML/KYC challenges requires more than incremental fixes. GPs need a connected approach that replaces fragmented workflows with a unified system capable of supporting the full investor lifecycle. The right solution brings structure, automation, transparency, and scalability into one place so GPs can meet regulatory expectations, protect the LP experience, and operate efficiently as they grow.

A connected platform centralizes data, digitizes ownership transparency, integrates screening, applies consistent risk ratings, and monitors in real time. It also ties directly into onboarding, capital activity, and treasury operations, so risk surfaces early and action can be taken quickly.

As Joshua Demers, Senior Director, Head of Investor Services, notes, “Regulation, LP experience, and operational efficiency often pull GPs in competing directions. AML uniquely sits at the intersection, and only purpose-built technology will satisfy all three demands at scale.”

The Private markets may be operating amid regulatory uncertainty, but the expectations placed on GPs are unmistakably moving in one direction. LPs want a seamless onboarding experience, regulators expect real controls even without a finalized rule, and operations must scale as firms enter new strategies and wealth channels. 

Meeting these demands requires more than incremental improvements. GPs need AML/KYC systems that provide real-time visibility, adapt as regulations evolve, and eliminate the manual work that slows onboarding and increases risk. A connected AML/KYC platform is becoming the core infrastructure for modern private funds, enabling GPs to operate confidently, scale efficiently, and maintain their LPs' trust in an environment where expectations will only continue to rise.