WEBVTT NOTE This file was generated by Descript 00:00:00.480 --> 00:00:02.440 Samantha: Hello, this is Samantha Shares. 00:00:03.020 --> 00:00:06.810 This episode covers the Interagency Statement on the Issuance of the AML/CFT 00:00:06.860 --> 00:00:09.320 Program Notices of Proposed Rulemaking 00:00:10.054 --> 00:00:13.124 The following is a word for word real audio of that item. 00:00:13.594 --> 00:00:16.804 This podcast is educational and is not legal advice. 00:00:17.234 --> 00:00:21.214 We are sponsored by Credit Union Exam Solutions Incorporated, whose 00:00:21.214 --> 00:00:24.294 team has over two hundred and Forty years of National Credit 00:00:24.294 --> 00:00:26.154 Union Administration experience. 00:00:26.674 --> 00:00:30.324 We assist our clients with N C U A so they save time and money. 00:00:30.734 --> 00:00:34.714 If you are worried about a recent, upcoming or in process N C U A 00:00:34.714 --> 00:00:39.114 examination, reach out to learn how they can assist at Mark Treichel DOT COM. 00:00:39.584 --> 00:00:43.934 Also check out our other podcast called With Flying Colors where we provide tips 00:00:43.934 --> 00:00:46.524 on how to achieve success with N C U A. 00:00:47.248 --> 00:00:49.428 And now the Notice of Proposed Rulemaking 00:00:50.140 --> 00:00:52.630 On June 28, 2024, the U.S. 00:00:52.630 --> 00:00:56.310 Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) 00:00:56.390 --> 00:01:00.960 issued a Notice of Proposed Rulemaking that proposes amendments to anti-money 00:01:00.960 --> 00:01:04.520 laundering/countering the financing of terrorism (AML/CFT) program requirements 00:01:04.520 --> 00:01:09.290 for all financial institutions subject to the Bank Secrecy Act (BSA) with AML/CFT 00:01:09.330 --> 00:01:14.000 program obligations.1 Additionally, the Board of Governors of the Federal Reserve 00:01:14.000 --> 00:01:18.770 System, the Federal Deposit Insurance Corporation, the National Credit Union 00:01:18.770 --> 00:01:22.920 Administration, and the Office of the Comptroller of the Currency (collectively, 00:01:23.230 --> 00:01:27.420 the “Agencies”) issued NPRMs today that propose amendments to their respective 00:01:27.510 --> 00:01:32.180 AML/CFT program (currently referred to as “BSA compliance programs”) rules 00:01:32.180 --> 00:01:36.020 for their supervised institutions (collectively, with FinCEN’s AML/CFT 00:01:36.100 --> 00:01:39.680 Program NPRM, “AML/CFT Program NPRMs”). 00:01:40.401 --> 00:01:44.681 Covered financial institutions, including banks,2 are already required 00:01:44.681 --> 00:01:49.611 to have BSA compliance programs, but the AML/CFT Program NPRMs would amend 00:01:49.611 --> 00:01:53.531 the requirements based, in part, on changes enacted by the Anti-Money 00:01:53.531 --> 00:01:56.001 Laundering Act of 2020 (the “AML Act”). 00:01:56.711 --> 00:02:00.821 The Agencies are proposing to make changes to their respective BSA compliance 00:02:00.821 --> 00:02:04.821 program rules to align those rules with FinCEN’s proposed revisions to 00:02:04.821 --> 00:02:07.051 its existing program rule for banks. 00:02:07.521 --> 00:02:10.701 In that way, banks would comply with one standard rather than 00:02:10.701 --> 00:02:14.541 differing program rule requirements between FinCEN and the Agencies. 00:02:15.171 --> 00:02:18.821 The amendments also would incorporate certain long standing supervisory 00:02:18.821 --> 00:02:20.991 expectations and technical amendments. 00:02:21.696 --> 00:02:25.426 FinCEN and the Agencies recognize that the issuance of the AML/CFT Program 00:02:25.426 --> 00:02:30.246 NPRMs is one of multiple steps needed to fully implement the AML Act and to 00:02:30.246 --> 00:02:34.516 carry out Congress’ purposes set out in the AML Act in requiring financial 00:02:34.516 --> 00:02:39.236 institutions to establish reasonably designed and risk-based AML/CFT programs. 00:02:39.646 --> 00:02:43.596 In light of this key milestone, FinCEN and the Agencies issue this statement 00:02:43.596 --> 00:02:47.246 to highlight how the proposed amendments are intended to complement and build 00:02:47.246 --> 00:02:51.746 upon current and anticipated AML Act implementation efforts, such as how 00:02:51.746 --> 00:02:55.666 the proposed amendments would codify into regulation existing risk-based 00:02:55.666 --> 00:03:00.086 practices and continue to foster the risk-based nature of AML/CFT programs. 00:03:00.596 --> 00:03:04.486 This statement does not alter existing BSA/AML legal or regulatory 00:03:04.486 --> 00:03:08.496 requirements, nor does it establish new supervisory expectations. 00:03:09.016 --> 00:03:12.756 This statement is also not intended to signal any particular outcome 00:03:12.786 --> 00:03:14.596 or emphasis in the final rule. 00:03:15.305 --> 00:03:17.565 Fulfilling the Purposes of the AML Act 00:03:18.274 --> 00:03:22.124 In addition to implementing certain substantive provisions of the AML Act, 00:03:22.234 --> 00:03:27.384 FinCEN and the Agencies intend for the AML/CFT Program NPRMs, and other AML Act 00:03:27.384 --> 00:03:32.074 implementation efforts, to further the AML Act’s overarching purposes in section 00:03:32.074 --> 00:03:37.474 6002, including “to modernize anti-money laundering and countering the financing 00:03:37.474 --> 00:03:41.784 of terrorism laws to adapt the government and private sector response to new and 00:03:41.784 --> 00:03:47.504 emerging threats.”3 The changes proposed in the AML/CFT Program NPRMs would further 00:03:47.504 --> 00:03:49.744 other purposes of the AML Act as well. 00:03:50.014 --> 00:03:54.064 These purposes include “encourage[ing] technological innovation and the 00:03:54.064 --> 00:03:58.344 adoption of new technology by financial institutions to more effectively counter 00:03:58.344 --> 00:04:02.764 money laundering and the financing of terrorism”, and “reinforc[ing] that the 00:04:02.764 --> 00:04:06.704 anti-money laundering and countering the financing of terrorism policies, 00:04:06.904 --> 00:04:10.984 procedures, and controls of financial institutions shall be risk-based.”4 00:04:12.905 --> 00:04:16.815 The AML/CFT Program NPRMs propose to support these purposes by 00:04:16.815 --> 00:04:20.575 requiring financial institutions to establish, implement, and 00:04:20.575 --> 00:04:24.985 maintain effective, risk-based, and reasonably designed AML/CFT programs. 00:04:25.325 --> 00:04:29.465 FinCEN and the Agencies intend for the changes proposed in the AML/CFT Program 00:04:29.665 --> 00:04:33.885 NPRMs to reinforce the focus of an AML/CFT regime toward more effective, 00:04:34.025 --> 00:04:38.055 risk-based, and reasonably designed programs aimed at preventing the flow of 00:04:38.055 --> 00:04:42.985 illicit funds in the financial system and providing highly useful reports or records 00:04:42.985 --> 00:04:44.645 to relevant government authorities.5 00:04:46.370 --> 00:04:48.770 Key Proposed Changes to AML/CFT Programs 00:04:49.533 --> 00:04:51.153 Purpose of AML/CFT Programs 00:04:51.832 --> 00:04:55.882 To provide further clarity, the AML/CFT Program NPRMs include a 00:04:55.882 --> 00:04:59.142 new statement of the purpose of AML/CFT program requirements. 00:04:59.582 --> 00:05:03.092 This purpose would be to ensure that a financial institution implements an 00:05:03.092 --> 00:05:07.482 effective, risk-based, and reasonably designed AML/CFT program to identify, 00:05:07.552 --> 00:05:12.112 manage, and mitigate illicit finance activity risks that: complies with the 00:05:12.112 --> 00:05:15.852 BSA and the requirements and prohibitions of its implementing regulations; 00:05:16.332 --> 00:05:20.482 focuses attention and resources in a manner consistent with the risk profile 00:05:20.482 --> 00:05:24.852 of the financial institution; may include consideration and evaluation of 00:05:24.902 --> 00:05:29.752 innovative approaches to meet its AML/CFT compliance obligations; provides highly 00:05:29.752 --> 00:05:33.872 useful reports or records to relevant government authorities; protects the 00:05:33.872 --> 00:05:38.292 financial system of the United States from criminal abuse; and safeguards the 00:05:38.292 --> 00:05:42.342 national security of the United States, including by preventing the flow of 00:05:42.342 --> 00:05:44.372 illicit funds in the financial system. 00:05:45.128 --> 00:05:47.248 Risk Assessment Process Requirements 00:05:47.898 --> 00:05:52.538 The AML/CFT Program NPRMs would require financial institutions to establish 00:05:52.568 --> 00:05:56.558 a risk assessment process to serve as the basis of the AML/CFT program. 00:05:56.828 --> 00:06:01.438 Specifically, the AML/CFT Program NPRMs would require a financial institution’s 00:06:01.438 --> 00:06:05.708 risk assessment process to identify, evaluate, and document the financial 00:06:05.708 --> 00:06:10.198 institution’s money laundering, terrorist financing, and other illicit finance 00:06:10.198 --> 00:06:15.398 activity (collectively “ML/TF”) risks, including consideration of: (1) the 00:06:15.398 --> 00:06:20.458 AML/CFT Priorities6 issued by FinCEN, as appropriate; (2) the ML/TF risks 00:06:20.458 --> 00:06:24.068 of the financial institution based on the financial institution’s business 00:06:24.068 --> 00:06:28.968 activities, including products, services, distribution channels, customers, 00:06:29.068 --> 00:06:34.058 intermediaries, and geographic locations; and (3) reports filed by the financial 00:06:34.058 --> 00:06:37.328 institution pursuant to 31 CFR chapter X. 00:06:37.578 --> 00:06:41.918 The AML/CFT Program NPRMs also would require financial institutions to 00:06:41.958 --> 00:06:46.218 update their risk assessments using the process proposed in the NPRMs on a 00:06:46.218 --> 00:06:50.848 periodic basis, including, at a minimum, when there are material changes to a 00:06:50.848 --> 00:06:53.358 financial institution’s ML/TF risks. 00:06:54.091 --> 00:06:58.251 The proposed risk assessment requirement would ensure that financial institutions 00:06:58.331 --> 00:07:02.661 integrate the results of a risk assessment process into their AML/CFT programs. 00:07:03.131 --> 00:07:07.171 The risk-based nature of the proposed changes is intended to enable financial 00:07:07.171 --> 00:07:11.001 institutions to better focus their attention and resources in a manner 00:07:11.001 --> 00:07:13.021 consistent with their risk profiles. 00:07:13.501 --> 00:07:17.351 It is expected that in doing so, financial institutions would implement 00:07:17.351 --> 00:07:21.441 more effective, risk-based, and reasonably designed AML/CFT programs 00:07:21.441 --> 00:07:25.041 that can better address law enforcement and national security needs and 00:07:25.041 --> 00:07:29.271 direct private compliance funds and resources in a more risk-based manner. 00:07:30.009 --> 00:07:33.819 Fostering Innovative Approaches to BSA Compliance Obligations 00:07:34.486 --> 00:07:38.266 The AML Act also encourages technological innovation and supports 00:07:38.266 --> 00:07:42.336 financial institutions in effectively innovating, testing, and adopting 00:07:42.336 --> 00:07:44.056 new technologies and approaches. 00:07:44.556 --> 00:07:48.526 FinCEN and the Agencies have long recognized that responsible innovation, 00:07:48.716 --> 00:07:53.326 including new ways of using existing tools or adopting new technologies, may 00:07:53.326 --> 00:07:58.176 help financial institutions identify and report possible ML/TF by enhancing 00:07:58.176 --> 00:08:03.156 the effectiveness and efficiency of financial institutions’ AML/CFT programs.7 00:08:03.892 --> 00:08:08.272 In support of these goals, the AML/CFT Program NPRMs include a provision that 00:08:08.272 --> 00:08:12.412 a financial institution’s internal policies, procedures, and controls may 00:08:12.412 --> 00:08:16.782 provide for a financial institution’s consideration, evaluation, and, 00:08:16.892 --> 00:08:20.732 as warranted by the institution’s risk profile and AML/CFT program, 00:08:20.942 --> 00:08:25.322 implementation of innovative approaches to meet BSA compliance obligations. 00:08:25.832 --> 00:08:29.532 In addition, FinCEN and the Agencies will continue to explore various 00:08:29.532 --> 00:08:34.032 regulatory processes to encourage and facilitate financial institutions’ use 00:08:34.032 --> 00:08:38.542 of technology or innovative approaches to meet BSA compliance obligations. 00:08:39.032 --> 00:08:42.862 In support of this objective, FinCEN and the Agencies intend to build on 00:08:42.862 --> 00:08:46.682 existing partnerships with the private sector and to engage with the private 00:08:46.682 --> 00:08:51.092 sector on innovation, including through the BSA Advisory Group Subcommittee 00:08:51.092 --> 00:08:52.882 on Innovation and Technology. 00:08:53.626 --> 00:08:54.906 Other Notable Changes 00:08:55.560 --> 00:09:00.230 The AML/CFT Program NPRMs would require financial institutions to have a presence 00:09:00.230 --> 00:09:04.990 in the United States,8 specifying that the duty to establish, maintain, and 00:09:04.990 --> 00:09:09.360 enforce the AML/CFT program must remain the responsibility of, and be performed 00:09:09.360 --> 00:09:14.150 by, persons in the United States who are accessible to, and subject to oversight 00:09:14.150 --> 00:09:18.410 and supervision by, FinCEN and the appropriate Federal functional regulator. 00:09:18.690 --> 00:09:22.920 The AML/CFT Program NPRMs would provide clarifying revisions for financial 00:09:22.920 --> 00:09:27.390 institutions supervised by the Agencies, including that independent testing 00:09:27.390 --> 00:09:31.370 be conducted by qualified personnel of the financial institution or by 00:09:31.370 --> 00:09:35.340 a qualified outside party and for an AML/CFT program to be effective, 00:09:35.500 --> 00:09:39.790 reasonably designed, and risk based, the compliance officer must be qualified. 00:09:40.430 --> 00:09:45.250 The AML/CFT Program NPRMs would add customer due diligence (CDD) as a required 00:09:45.250 --> 00:09:49.360 component of the Agencies’ AML/CFT compliance program rule requirements. 00:09:49.590 --> 00:09:54.150 CDD is currently a required component in FinCEN’s rule, and, therefore, 00:09:54.220 --> 00:09:58.110 banks are already required to comply with CDD under FinCEN’s rules. 00:09:58.884 --> 00:10:00.854 Broader AML Act Implementation 00:10:01.571 --> 00:10:05.801 FinCEN and the Agencies recognize that the AML/CFT Program Rule NPRMs 00:10:05.801 --> 00:10:09.661 represent one part of the significant reform envisioned in the AML Act. 00:10:10.201 --> 00:10:14.121 As such, FinCEN and the Agencies intend for the proposed rules to work in 00:10:14.121 --> 00:10:18.531 concert with the broader implementation of the AML Act, as described below. 00:10:19.203 --> 00:10:20.843 Supervision and Examination 00:10:21.681 --> 00:10:25.911 FinCEN and the Agencies, as applicable, are committed to fully implementing the 00:10:25.911 --> 00:10:29.371 supervision- and examination-related measures in the AML Act. 00:10:29.971 --> 00:10:34.651 In particular, section 6101 of the AML Act requires that the review by a 00:10:34.651 --> 00:10:38.841 bank of the AML/CFT Priorities and the incorporation of those priorities, as 00:10:38.841 --> 00:10:43.911 appropriate, into its risk-based AML/CFT program, be included as a measure on which 00:10:43.911 --> 00:10:48.961 a bank is supervised and examined.9 As indicated previously in the Interagency 00:10:48.961 --> 00:10:53.171 Statement on the Issuance of the AML/CFT National Priorities, the Agencies and 00:10:53.171 --> 00:10:57.421 FinCEN recognize the need to provide revised regulations and timely guidance 00:10:57.421 --> 00:10:59.871 to assist banks in complying with the BSA. 00:11:00.461 --> 00:11:04.411 In addition, the Agencies are committed to working with FinCEN to develop any 00:11:04.411 --> 00:11:08.721 necessary corresponding guidance and examination procedures for examiners.10 00:11:10.274 --> 00:11:15.074 Further, section 6307 of the AML Act requires the Secretary of the 00:11:15.074 --> 00:11:18.764 Treasury, in consultation with the Federal Financial Institutions 00:11:18.764 --> 00:11:23.604 Examination Council (FFIEC), FinCEN, and Federal, State, Tribal, and local 00:11:23.604 --> 00:11:27.604 law enforcement agencies, to establish appropriate training materials and 00:11:27.604 --> 00:11:33.004 standards and provide examiner training on various risk and AML/CFT topics.11 00:11:33.004 --> 00:11:37.024 As members of the FFIEC, the Agencies stand ready to consult with FinCEN on 00:11:37.024 --> 00:11:38.824 this examiner training requirement. 00:11:39.576 --> 00:11:41.636 Measures to Enhance Feedback Loops 00:11:42.253 --> 00:11:46.443 FinCEN and the Agencies also recognize the importance of feedback to financial 00:11:46.443 --> 00:11:51.013 institutions on BSA-related reporting provided by financial institutions. 00:11:51.583 --> 00:11:55.433 To that end, FinCEN and the Agencies intend for the proposed changes in 00:11:55.433 --> 00:11:59.663 the AML/CFT Program NPRMs to lay the groundwork for AML/CFT programs to 00:11:59.663 --> 00:12:03.943 enhance iterative feedback—or feedback loops— between financial institutions 00:12:03.943 --> 00:12:07.703 and law enforcement to improve the effectiveness of the AML/CFT programs. 00:12:08.003 --> 00:12:11.503 While various feedback loops currently exist between the United States 00:12:11.503 --> 00:12:15.933 government and financial institutions, they are limited in scope, frequency, 00:12:16.023 --> 00:12:17.413 and type of feedback shared. 00:12:17.923 --> 00:12:21.203 FinCEN and the Agencies are committed to working together to support 00:12:21.203 --> 00:12:24.903 risk-based AML/CFT programs by enhancing feedback loops in this 00:12:24.903 --> 00:12:26.713 collective effort to protect the U.S. 00:12:26.713 --> 00:12:30.813 financial system and safeguard the national security of the United States. 00:12:31.499 --> 00:12:33.299 Additional AML Act Reviews 00:12:33.978 --> 00:12:38.178 The AML Act also requires FinCEN to conduct certain reviews related to the 00:12:38.178 --> 00:12:42.628 existing AML/CFT framework, and FinCEN is committed to working with the Agencies in 00:12:42.628 --> 00:12:44.588 their consultative role on these efforts. 00:12:45.208 --> 00:12:50.478 Among these, pursuant to AML Act section 6216, FinCEN, in consultation 00:12:50.478 --> 00:12:54.408 with the Agencies and other government stakeholders, is conducting a broad 00:12:54.408 --> 00:12:58.528 review of AML/CFT regulations and guidance and plans to issue a report to 00:12:58.528 --> 00:13:02.278 Congress that contains administrative or legislative recommendations 00:13:02.278 --> 00:13:03.948 and fulfills certain objectives. 00:13:04.408 --> 00:13:08.368 FinCEN also intends to complete its review regarding streamlined BSA 00:13:08.368 --> 00:13:12.278 reporting requirements, including Currency Transaction Reports and 00:13:12.278 --> 00:13:17.938 Suspicious Activity Reports, pursuant to AML Act section 6204, as well as 00:13:17.938 --> 00:13:21.618 its review regarding dollar reporting thresholds for applicable BSA 00:13:21.618 --> 00:13:24.868 reports under AML Act section 6205. 00:13:25.208 --> 00:13:29.678 These AML Act reviews and reports, including their results, recommendations, 00:13:29.748 --> 00:13:33.998 and ultimately any implementation, would complement and build upon the proposed 00:13:33.998 --> 00:13:38.508 changes to AML/CFT programs in the AML/CFT Program NPRMs to promote a more 00:13:38.508 --> 00:13:40.968 effective and risk-based AML/CFT regime. 00:13:41.746 --> 00:13:43.286 Corporate Transparency Act 00:13:43.940 --> 00:13:47.680 The AML/CFT Program NPRMs are unrelated to the implementation of 00:13:47.680 --> 00:13:51.700 the Corporate Transparency Act (CTA), which aims to improve financial 00:13:51.700 --> 00:13:55.590 transparency and prevent criminals and terrorists from misusing companies 00:13:55.590 --> 00:13:59.410 to disguise their illicit activities and launder their ill-gotten gains. 00:13:59.930 --> 00:14:04.100 As required by the CTA, and in consultation with the Agencies, FinCEN 00:14:04.100 --> 00:14:07.920 intends to issue a proposed rule to revise the beneficial ownership 00:14:07.970 --> 00:14:11.410 information collection requirements for legal entity customers. 00:14:12.157 --> 00:14:12.837 Conclusion 00:14:13.532 --> 00:14:16.452 The AML Act envisions significant reforms to the U.S. 00:14:16.492 --> 00:14:20.092 AML/CFT regime, and the proposed amendments in the AML/CFT Program 00:14:20.142 --> 00:14:24.322 NPRMs would set a critical foundation for potential future changes in the 00:14:24.322 --> 00:14:28.892 AML/CFT framework in the multi-step, multi-year implementation of the AML Act. 00:14:29.492 --> 00:14:33.632 FinCEN and the Agencies recognize that banks already have BSA compliance 00:14:33.632 --> 00:14:37.862 programs with many of the features described in the AML/CFT Program NPRMs. 00:14:38.322 --> 00:14:43.002 With the AML/CFT Program NPRMs and this joint statement, FinCEN and the Agencies 00:14:43.002 --> 00:14:47.002 are communicating their commitment to the AML Act’s purposes of modernizing the 00:14:47.002 --> 00:14:51.472 AML/CFT regime, encouraging innovation to more effectively counter money laundering 00:14:51.562 --> 00:14:55.922 and the financing of terrorism, improving law enforcement and national security 00:14:55.922 --> 00:15:00.382 objectives, and further safeguarding the financial system from illicit activity. 00:15:01.100 --> 00:15:03.630 This concludes the Notice of Proposed Rulemaking 00:15:04.319 --> 00:15:08.499 If your Credit union could use assistance with your exam, reach out to Mark Treichel 00:15:08.499 --> 00:15:11.249 on LinkedIn, or at mark Treichel dot com. 00:15:11.809 --> 00:15:14.449 This is Samantha Shares and we Thank you for listening.