As discussed here, on June 28, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) proposed significant amendments to the anti-money laundering and countering the financing of terrorism (AML/CFT) program requirements for financial institutions subject to the Bank Secrecy Act (BSA). Last week, 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 joint statement announcing their own notice of proposed rulemaking for their supervised institutions. The purpose of the proposed rulemaking is to align the agencies’ respective AML/CFT program rules with FinCEN’s proposed revisions, ensuring a unified standard for compliance.

Highlights of the agencies’ proposed rulemaking, include:

• Purpose of AML/CFT Programs: The proposed rulemaking suggests a new statement of purpose for AML/CFT program requirements. This purpose emphasizes the need for financial institutions to implement effective, risk-based, and reasonably designed AML/CFT programs that identify, manage, and mitigate illicit finance activity risks. The programs must comply with the BSA, focus resources based on the institution’s risk profile, and provide useful reports to government authorities to protect the U.S. financial system.
• Risk Assessment Process Requirements: The proposed rules require financial institutions to establish a risk assessment process as the foundation of their AML/CFT programs. This process involves identifying, evaluating, and documenting the institution’s money laundering and terrorist financing risks, considering factors such as business activities, products, services, customers, and geographic locations.
• Fostering Innovation: The proposed rulemaking encourages financial institutions to adopt innovative approaches to meet BSA compliance obligations. This includes leveraging new technologies to enhance the effectiveness and efficiency of AML/CFT programs.
• S. Presence: The proposed rules specify that the duty to establish, maintain, and enforce the AML/ CFT program must remain the responsibility of persons in the United States who are subject to oversight and supervision by FinCEN and the appropriate federal functional regulator.
• Broader AML Act Implementation: The proposed rulemaking is part of a broader effort to implement the Anti-Money Laundering Act of 2020. This includes enhancing feedback loops between financial institutions and law enforcement, conducting reviews of existing AML/CFT regulations, and issuing new rules related to beneficial ownership information collection.
• Supervision and Examination: The proposed rulemaking emphasizes the need for financial institutions to incorporate AML/CFT priorities into their risk-based programs. To reinforce this priority, FinCEN intends to work with law enforcement and the Federal Financial Institutions Examination Council (FFIEC) to establish an annual program to train examiners on potential risk profiles and warning signs examiners may encounter; financial crime patterns and trends; de-risking and the effects of de-risking on the provision of financial services; and reinforcing the purpose of AML/CFT programs, including the risks those programs seek to mitigate. The agencies state they are committed to working with FinCEN and law enforcement to provide timely guidance and develop improved examination procedures to assist institutions in complying with these requirements.
• Promoting Consistency: Another important issue highlighted in the proposal is promoting the consistency of supervisory guidance from the agencies. FinCEN intends to act as a liaison between financial institutions and the agencies with respect to information sharing matters and to solicit industry feedback. One focus of this effort will involve reviewing Suspicious Activity Reports (SARs) filed by financial institutions and discussing trends in suspicious activity observed by FinCEN.

The agencies are accepting comments on the proposed rulemaking until September 3, 2024 (60 days after publication in the Federal Register).

Action Plan:

Financial institutions across the board would be impacted by the proposed rule, which itself raises a number of issues of importance to different industry players. Institutions should review the proposed rule carefully and work with their advisors to identify potential areas of concern. For some, a comment letter may be the best way to communicate concerns that may be shared with a number of other institutions. Other institutions may prefer not to comment on the proposal but should, nonetheless, review and consider the potential impact on their existing AML/CFT compliance program.

Key issues to review are:

• The existing framework of the institution’s AML/CFT program to ensure that it has a risk assessment process as the foundation of the program. The process should be able to identify, evaluate, and document the institution’s money laundering and terrorist financing risks;
• Potential cost considerations, including costs to innovate, costs to hire additional AML/CFT compliance staff, and costs required to upgrade or replace existing but outdated compliance programs;
• The existing AML/CFT compliance programs to assess the effectiveness of such programs, and initiatives that should be considered to improve program efficiency and effectiveness;
• Compliance program components provided by vendors and other third-party service providers, and assess the utility and effectiveness of such services; and
• For institutions that have received adverse AML/CFT comments or criticism in recent exams or are the subject of an AML/CFT supervisory or enforcement action, the potential implications of the proposal to those unique issues, including whether actions should be taken to remediate any outstanding issues of concern.