The federal banking agencies, including the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Office of the Comptroller of the Currency (collectively the “Agencies”), issued a notice of proposed rulemaking (“Agencies’ NPRM”) to modernize financial institutions’ anti-money laundering and countering terrorist financing (“AML/CFT”) programs. The Agencies’ NPRM is consistent with FinCEN’s recent AML/CFT modernization proposal (“FinCEN’s NPRM”), on which we blogged here.

The Agencies’ NPRM does not substantively depart from FinCEN’s NPRM and requires the same program requirements. Although the Anti-Money Laundering Act (“AML Act”) did not require the Agencies to amend their regulations, the Agencies’ goal is to maintain consistent program requirements. The NPRM states that financial institutions will not be subject to any additional burdens in complying with differing standards between FinCEN and the Agencies.   

The NPRM

The Agencies’ NPRM includes two notable changes to the Agencies’ regulations (both of which were included in FinCEN’s NPRM): (1) the addition of Customer Due Diligence requirements for covered financial institutions, which were historically located only in FinCEN’s regulations; and (2) the requirement that the duty to establish, maintain, and enforce an AML/CFT program remain the responsibility of, and be performed, by persons physically located in the United States who are subject to oversight and supervision by FinCEN and the Agencies.

Other than these notable changes, the NPRM provides additional color on each program requirement, some of which has existed in Agency guidance.  

In terms of adopting the AML/CFT Priorities, the NPRM highlights that financial institutions will have flexibility over the manner in which the priorities are integrated into their risk assessments and the method of assessing the risks of each priority.

The NPRM indicates that the addition of the term “effective” in the overall requirement to “establish, implement, and maintain an effective, risk-based, and reasonably designed BSA compliance program” is a clarifying amendment, as the Agencies evaluate the effectiveness of the overall program and not just its design.

The NPRM notes that a “qualified” compliance officer should have the requisite training, skills, expertise, and experience commensurate with the financial institution’s risks. Thus, a compliance officer at a less-complex financial institution may not necessarily have the experience and training as a compliance officer at a more complex financial institution. Additional job duties or conflicting responsibilities that adversely impact the compliance officer’s ability to effectively coordinate day-to-day compliance would also not meet the program requirement. The NPRM also clarifies that board approval alone of the AML/CFT program is not sufficient to meet program requirements.

The Agencies’ NPRM has not yet been published in the Federal Register, so the 60-day period for public comment has not yet begun to run.

The Interagency Statement

In conjunction with announcing the Agencies’ NPRM, the Agencies and FinCEN issued an Interagency Statement. The Interagency Statement reiterates the key points of the NPRM.  It also highlights the focus on fostering innovative approaches and cross-references 2018 interagency guidance on the issue. Moreover, the Interagency Statement notes that both FinCEN and the Agencies will “continue to explore various regulatory processes to encourage and facilitate financial institutions’ use of technology or innovative approaches to meet BSA compliance obligations.” The intent is to build upon existing partnerships with the private sector, including through the Bank Secrecy Act Advisory Group Subcommittee on Innovation and Technology.

The Agencies reiterate their commitment to fully implementing the examination and supervision measures of the AML Act, including by providing additional guidance and examination procedures, as well as training for bank examiners. The Interagency Statement lists other future efforts to fully implement the AML Act, such as enhancing feedback loops between law enforcement and financial institutions on BSA reporting, and streamlining BSA reporting requirements.  Finally, the Interagency Statement notes that FinCEN, in consultation with the Agencies, will issue a proposed rule to revise the Customer Due Diligence rule for financial institutions in order to align it with the Corporate Transparency Act.

[View source.]