The Financial Crimes Enforcement Network (FinCEN) recently announced a proposed rule aimed at enhancing and modernizing Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) regulations. The proposed rule has been issued in collaboration with several key regulatory agencies, including the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (Federal Reserve), the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), and the Office of Thrift Supervision (OTS).
The past two decades have seen significant advancements in technology, the rise of cryptocurrencies, and increasingly sophisticated financial crimes. Since the enactment of the USA PATRIOT Act in 2001, which expanded the scope of the Bank Secrecy Act (BSA) to include measures against terrorism financing, AML/CFT regulations have continually evolved to address threats and improve compliance mechanisms across the financial services sector. The Anti-Money Laundering Act of 2020 (AMLA) was one such significant update, introducing measures such as the establishment of the National AML/CFT Priorities, increased penalties for violations, and expanded requirements for the collection of beneficial ownership information. The newly proposed rule is the latest attempt by FinCEN to modernize its regulatory framework.
The proposed rule applies to a wide range of financial institutions, including banks, credit unions, trust companies, savings associations, and non-bank financial institutions such as money services businesses, brokers or dealers in securities, mutual funds, and operators of credit card systems. Key aspects of the proposal include:
- Amendment of Existing Program Rules
- Explicit requirement for financial institutions to establish, implement, and maintain effective, risk-based AML/CFT programs.
- Inclusion of a mandatory risk assessment process.
- Government-wide AML/CFT Priorities
- Requirement for financial institutions to review and incorporate government-wide AML/CFT priorities into risk-based programs.
- Provision for technical changes to program requirements.
- Clarity and Consistency
- Promotion of clarity and consistency across FinCEN’s program rules for various financial institutions.
- Broader Considerations
- Emphasis on avoiding one-size-fits-all approaches to customer risk.
- Alignment with Treasury’s De-risking Strategy, recommending regulations for risk-based AML/CFT programs.
- Encouragement for financial institutions to modernize and responsibly innovate their AML/CFT programs while managing illicit finance risks.
The announcement of this proposed rule is significant for several reasons:
- Enhanced Security and Compliance: By modernizing the AML/CFT framework, the proposed rule aims to better protect the financial system from illicit activities, enhancing security and ensuring compliance with evolving regulatory standards.
- Adaptation to Emerging Threats: The emphasis on a risk-based approach and the use of advanced technologies demonstrates FinCEN’s commitment to addressing emerging threats in a rapidly changing financial landscape.
- Global Leadership: The proposed rule reinforces the United States’ position as a global leader in the fight against money laundering and terrorist financing, encouraging other countries to adopt similar measures and strengthening international cooperation.
- Operational Implications: For financial services professionals, this proposed rule will have significant operational implications. Institutions will need to review and possibly overhaul their AML/CFT programs, invest in new technologies, and ensure that staff is adequately trained to comply with updated requirements.
Looking Ahead
FinCEN’s proposed rule to enhance and modernize AML/CFT regulations marks a crucial step in the ongoing effort to safeguard the financial system from illicit activities. The comment period for the rule runs through September 3, 2024. Financial services professionals should stay informed of these developments and prepare for the operational changes that will follow, ensuring their institutions remain compliant and contribute to the global fight against financial crime. For detailed guidance on how to navigate these changes and ensure your institution’s compliance, consult with a financial advisor today.
Nicole Davis joined ARB in 2013 as an associate and became a manager in 2022. She provides business advisory and attest services primarily to commercial entities, credit unions, auto dealerships, and nonprofit organizations.
