Samantha: Hello, this is Samantha Shares.
This episode covers the Interagency Statement on the Issuance of the AML/CFT
Program Notices of Proposed Rulemaking
The following is a word for word real audio of that item.
This podcast is educational and is not legal advice.
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And now the Notice of Proposed Rulemaking
On June 28, 2024, the U.S.
Department of the Treasuryâs Financial Crimes Enforcement Network (FinCEN)
issued a Notice of Proposed Rulemaking that proposes amendments to anti-money
laundering/countering the financing of terrorism (AML/CFT) program requirements
for all financial institutions subject to the Bank Secrecy Act (BSA) with AML/CFT
program obligations.1 Additionally, 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 âAgenciesâ) issued NPRMs today that propose amendments to their respective
AML/CFT program (currently referred to as âBSA compliance programsâ) rules
for their supervised institutions (collectively, with FinCENâs AML/CFT
Program NPRM, âAML/CFT Program NPRMsâ).
Covered financial institutions, including banks,2 are already required
to have BSA compliance programs, but the AML/CFT Program NPRMs would amend
the requirements based, in part, on changes enacted by the Anti-Money
Laundering Act of 2020 (the âAML Actâ).
The Agencies are proposing to make changes to their respective BSA compliance
program rules to align those rules with FinCENâs proposed revisions to
its existing program rule for banks.
In that way, banks would comply with one standard rather than
differing program rule requirements between FinCEN and the Agencies.
The amendments also would incorporate certain long standing supervisory
expectations and technical amendments.
FinCEN and the Agencies recognize that the issuance of the AML/CFT Program
NPRMs is one of multiple steps needed to fully implement the AML Act and to
carry out Congressâ purposes set out in the AML Act in requiring financial
institutions to establish reasonably designed and risk-based AML/CFT programs.
In light of this key milestone, FinCEN and the Agencies issue this statement
to highlight how the proposed amendments are intended to complement and build
upon current and anticipated AML Act implementation efforts, such as how
the proposed amendments would codify into regulation existing risk-based
practices and continue to foster the risk-based nature of AML/CFT programs.
This statement does not alter existing BSA/AML legal or regulatory
requirements, nor does it establish new supervisory expectations.
This statement is also not intended to signal any particular outcome
or emphasis in the final rule.
Fulfilling the Purposes of the AML Act
In addition to implementing certain substantive provisions of the AML Act,
FinCEN and the Agencies intend for the AML/CFT Program NPRMs, and other AML Act
implementation efforts, to further the AML Actâs overarching purposes in section
6002, including âto modernize anti-money laundering and countering the financing
of terrorism laws to adapt the government and private sector response to new and
emerging threats.â3 The changes proposed in the AML/CFT Program NPRMs would further
other purposes of the AML Act as well.
These purposes include âencourage[ing] technological innovation and the
adoption of new technology by financial institutions to more effectively counter
money laundering and the financing of terrorismâ, and âreinforc[ing] that the
anti-money laundering and countering the financing of terrorism policies,
procedures, and controls of financial institutions shall be risk-based.â4
The AML/CFT Program NPRMs propose to support these purposes by
requiring financial institutions to establish, implement, and
maintain effective, risk-based, and reasonably designed AML/CFT programs.
FinCEN and the Agencies intend for the changes proposed in the AML/CFT Program
NPRMs to reinforce the focus of an AML/CFT regime toward more effective,
risk-based, and reasonably designed programs aimed at preventing the flow of
illicit funds in the financial system and providing highly useful reports or records
to relevant government authorities.5
Key Proposed Changes to AML/CFT Programs
Purpose of AML/CFT Programs
To provide further clarity, the AML/CFT Program NPRMs include a
new statement of the purpose of AML/CFT program requirements.
This purpose would be to ensure that a financial institution implements an
effective, risk-based, and reasonably designed AML/CFT program to identify,
manage, and mitigate illicit finance activity risks that: complies with the
BSA and the requirements and prohibitions of its implementing regulations;
focuses attention and resources in a manner consistent with the risk profile
of the financial institution; may include consideration and evaluation of
innovative approaches to meet its AML/CFT compliance obligations; provides highly
useful reports or records to relevant government authorities; protects the
financial system of the United States from criminal abuse; and safeguards the
national security of the United States, including by preventing the flow of
illicit funds in the financial system.
Risk Assessment Process Requirements
The AML/CFT Program NPRMs would require financial institutions to establish
a risk assessment process to serve as the basis of the AML/CFT program.
Specifically, the AML/CFT Program NPRMs would require a financial institutionâs
risk assessment process to identify, evaluate, and document the financial
institutionâs money laundering, terrorist financing, and other illicit finance
activity (collectively âML/TFâ) risks, including consideration of: (1) the
AML/CFT Priorities6 issued by FinCEN, as appropriate; (2) the ML/TF risks
of the financial institution based on the financial institutionâs business
activities, including products, services, distribution channels, customers,
intermediaries, and geographic locations; and (3) reports filed by the financial
institution pursuant to 31 CFR chapter X.
The AML/CFT Program NPRMs also would require financial institutions to
update their risk assessments using the process proposed in the NPRMs on a
periodic basis, including, at a minimum, when there are material changes to a
financial institutionâs ML/TF risks.
The proposed risk assessment requirement would ensure that financial institutions
integrate the results of a risk assessment process into their AML/CFT programs.
The risk-based nature of the proposed changes is intended to enable financial
institutions to better focus their attention and resources in a manner
consistent with their risk profiles.
It is expected that in doing so, financial institutions would implement
more effective, risk-based, and reasonably designed AML/CFT programs
that can better address law enforcement and national security needs and
direct private compliance funds and resources in a more risk-based manner.
Fostering Innovative Approaches to BSA Compliance Obligations
The AML Act also encourages technological innovation and supports
financial institutions in effectively innovating, testing, and adopting
new technologies and approaches.
FinCEN and the Agencies have long recognized that responsible innovation,
including new ways of using existing tools or adopting new technologies, may
help financial institutions identify and report possible ML/TF by enhancing
the effectiveness and efficiency of financial institutionsâ AML/CFT programs.7
In support of these goals, the AML/CFT Program NPRMs include a provision that
a financial institutionâs internal policies, procedures, and controls may
provide for a financial institutionâs consideration, evaluation, and,
as warranted by the institutionâs risk profile and AML/CFT program,
implementation of innovative approaches to meet BSA compliance obligations.
In addition, FinCEN and the Agencies will continue to explore various
regulatory processes to encourage and facilitate financial institutionsâ use
of technology or innovative approaches to meet BSA compliance obligations.
In support of this objective, FinCEN and the Agencies intend to build on
existing partnerships with the private sector and to engage with the private
sector on innovation, including through the BSA Advisory Group Subcommittee
on Innovation and Technology.
Other Notable Changes
The AML/CFT Program NPRMs would require financial institutions to have a presence
in the United States,8 specifying that the duty to establish, maintain, and
enforce the AML/CFT program must remain the responsibility of, and be performed
by, persons in the United States who are accessible to, and subject to oversight
and supervision by, FinCEN and the appropriate Federal functional regulator.
The AML/CFT Program NPRMs would provide clarifying revisions for financial
institutions supervised by the Agencies, including that independent testing
be conducted by qualified personnel of the financial institution or by
a qualified outside party and for an AML/CFT program to be effective,
reasonably designed, and risk based, the compliance officer must be qualified.
The AML/CFT Program NPRMs would add customer due diligence (CDD) as a required
component of the Agenciesâ AML/CFT compliance program rule requirements.
CDD is currently a required component in FinCENâs rule, and, therefore,
banks are already required to comply with CDD under FinCENâs rules.
Broader AML Act Implementation
FinCEN and the Agencies recognize that the AML/CFT Program Rule NPRMs
represent one part of the significant reform envisioned in the AML Act.
As such, FinCEN and the Agencies intend for the proposed rules to work in
concert with the broader implementation of the AML Act, as described below.
Supervision and Examination
FinCEN and the Agencies, as applicable, are committed to fully implementing the
supervision- and examination-related measures in the AML Act.
In particular, section 6101 of the AML Act requires that the review by a
bank of the AML/CFT Priorities and the incorporation of those priorities, as
appropriate, into its risk-based AML/CFT program, be included as a measure on which
a bank is supervised and examined.9 As indicated previously in the Interagency
Statement on the Issuance of the AML/CFT National Priorities, the Agencies and
FinCEN recognize the need to provide revised regulations and timely guidance
to assist banks in complying with the BSA.
In addition, the Agencies are committed to working with FinCEN to develop any
necessary corresponding guidance and examination procedures for examiners.10
Further, section 6307 of the AML Act requires the Secretary of the
Treasury, in consultation with the Federal Financial Institutions
Examination Council (FFIEC), FinCEN, and Federal, State, Tribal, and local
law enforcement agencies, to establish appropriate training materials and
standards and provide examiner training on various risk and AML/CFT topics.11
As members of the FFIEC, the Agencies stand ready to consult with FinCEN on
this examiner training requirement.
Measures to Enhance Feedback Loops
FinCEN and the Agencies also recognize the importance of feedback to financial
institutions on BSA-related reporting provided by financial institutions.
To that end, FinCEN and the Agencies intend for the proposed changes in
the AML/CFT Program NPRMs to lay the groundwork for AML/CFT programs to
enhance iterative feedbackâor feedback loopsâ between financial institutions
and law enforcement to improve the effectiveness of the AML/CFT programs.
While various feedback loops currently exist between the United States
government and financial institutions, they are limited in scope, frequency,
and type of feedback shared.
FinCEN and the Agencies are committed to working together to support
risk-based AML/CFT programs by enhancing feedback loops in this
collective effort to protect the U.S.
financial system and safeguard the national security of the United States.
Additional AML Act Reviews
The AML Act also requires FinCEN to conduct certain reviews related to the
existing AML/CFT framework, and FinCEN is committed to working with the Agencies in
their consultative role on these efforts.
Among these, pursuant to AML Act section 6216, FinCEN, in consultation
with the Agencies and other government stakeholders, is conducting a broad
review of AML/CFT regulations and guidance and plans to issue a report to
Congress that contains administrative or legislative recommendations
and fulfills certain objectives.
FinCEN also intends to complete its review regarding streamlined BSA
reporting requirements, including Currency Transaction Reports and
Suspicious Activity Reports, pursuant to AML Act section 6204, as well as
its review regarding dollar reporting thresholds for applicable BSA
reports under AML Act section 6205.
These AML Act reviews and reports, including their results, recommendations,
and ultimately any implementation, would complement and build upon the proposed
changes to AML/CFT programs in the AML/CFT Program NPRMs to promote a more
effective and risk-based AML/CFT regime.
Corporate Transparency Act
The AML/CFT Program NPRMs are unrelated to the implementation of
the Corporate Transparency Act (CTA), which aims to improve financial
transparency and prevent criminals and terrorists from misusing companies
to disguise their illicit activities and launder their ill-gotten gains.
As required by the CTA, and in consultation with the Agencies, FinCEN
intends to issue a proposed rule to revise the beneficial ownership
information collection requirements for legal entity customers.
Conclusion
The AML Act envisions significant reforms to the U.S.
AML/CFT regime, and the proposed amendments in the AML/CFT Program
NPRMs would set a critical foundation for potential future changes in the
AML/CFT framework in the multi-step, multi-year implementation of the AML Act.
FinCEN and the Agencies recognize that banks already have BSA compliance
programs with many of the features described in the AML/CFT Program NPRMs.
With the AML/CFT Program NPRMs and this joint statement, FinCEN and the Agencies
are communicating their commitment to the AML Actâs purposes of modernizing the
AML/CFT regime, encouraging innovation to more effectively counter money laundering
and the financing of terrorism, improving law enforcement and national security
objectives, and further safeguarding the financial system from illicit activity.
This concludes the Notice of Proposed Rulemaking
If your Credit union could use assistance with your exam, reach out to Mark Treichel
on LinkedIn, or at mark Treichel dot com.
This is Samantha Shares and we Thank you for listening.