On 6/29/24, FinCEN, in consultation with the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the National Credit Union Administration published an AML/CFT proposed rule. The purpose of the AML/CFT FinCEN Proposed Rule is to strengthen and modernize financial institutions’ AML/CFT programs by amending those regulations to “expressly require that such programs be effective, risk-based, and reasonably designed, enabling financial institutions to focus their resources and attention in a manner consistent with their risk profiles.” Other notable new requirements that could have economic impact include:
- A financial institution’s AML/CFT program remain the responsibility of, and be performed by, persons in the United States who are accessible to, and subject to oversight and supervision by, the Secretary and the appropriate Federal functional regulator. This means that financial institutions are prohibited from outsourcing oversight of AML/CFT programs overseas.
- requirement for a financial institution’s board of directors, or an equivalent governing body, to provide direct oversight of the AML/CFT program. This means that oversight measures, such as governance mechanisms, escalation, and reporting lines, need to ensure that the board can properly oversee whether AML/CFT programs are operating in an effective, risk-based, and reasonably designed manner.
In sum, financial institutions ought to ask themselves if they will be ready for new requirements as well as compliance with a mandatory risk assessment process.
According to the AML/CFT FinCEN Proposed Rule, this proposed rule would:
- amend the existing program rules to explicitly require financial institutions to establish, implement, and maintain effective, risk-based, and reasonably designed AML/CFT programs with certain minimum components, including a mandatory risk assessment process;
- require financial institutions to review government-wide AML/CFT priorities and incorporate them, as appropriate, into risk-based programs, as well as provide for certain technical changes to program requirements; and
- promote clarity and consistency across FinCEN’s program rules for different types of financial institutions.
What the AML/CFT FinCEN Proposed Rule sets to accomplish:
- Avoid one-size-fits-all approaches to customer risk that can lead to financial institutions declining to provide financial services to entire categories of customers.
- Provide consistency with a key recommendation in Treasury’s De-risking Strategy, which recommended proposing regulations to require financial institutions to have reasonably designed and risk-based AML/CFT programs supervised on a risk basis and taking into consideration the effects of financial inclusion.
- Encourage financial institutions to modernize their AML/CFT programs where appropriate to responsibly innovate, while still managing illicit finance risks.
The AML/CFT FinCEN Proposed Rule requires the risk assessment process to identify, evaluate, and document the financial institution’s risks, including consideration of:
(1) the AML/CFT Priorities, as appropriate;
(2) the money laundering and terrorist financing (ML/TF) risks of the financial institution, based on a periodic evaluation of its business activities, including products, services, channels, customers, intermediaries, and geographic locations; and
(3) reports filed by financial institutions pursuant to 31 CFR chapter X. The proposed rule also includes a provision that financial institutions periodically review and update their risk assessment process including, at a minimum, when there are material changes to their ML/TF risks.
Other consideration extracts of the AML/CFT FinCEN Proposed Rule are:
- Work in concert with other sections of the AML Act, including sections 6103 (FinCEN Exchange), 6107 (Establishment of FinCEN Domestic Liaisons), and 6206 (Sharing of threat pattern and trend information).
- Feed into critical feedback loops. provide a starting point for more robust feedback loops among FinCEN, law enforcement, financial regulators, and financial institutions.
- Federal Banking Agencies to collectively issue proposed amendments to their respective BSA compliance program rules for the institutions they supervise.
- Set a critical foundation for potential future changes in the AML/CFT framework as part of the multi-step, multi-year implementation of the AML Act.
Will your financial institution be ready for the AML/CFT FinCEN Proposed Rule?
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