Reason to Believe?[I]

There has been a lot of talk during the past few years on how to improve the AML infrastructure. Whether you are a regulator, law enforcement or a member of the broad financial services community, we have all correctly complained about almost 35 years of laws, regulations and guidance impacting how to address the movement of illicit funds without modifying or eliminating any requirements.

FinCEN is apparently now seeking input from all stakeholders on how to have an “effective and reasonably designed” AML Program.

Is there a reason to believe change will occur? If you comment carefully and specifically, it just might.

On September 16th, with a comment deadline of November 16th, FinCEN has issued an Advanced Notice of Proposed Rulemaking (ANPRM) on a number of questions (11) related to potential amendments under the Bank Secrecy Act. As a reminder, Congress is also actively considering legislation to improve and enhance AML and there are similar themes and topics.

 

So what is FinCEN focusing on?

Obviously you should look at the various questions posed toward the end of the ANPRM, but the introduction to the questions provides needed context to the overall scope of how to address the current status of the BSA.

FinCEN points out that the recommended areas of focus came from a working group of the Bank Secrecy Act Advisory Group (BSAAG); that’s a welcome addition to the ongoing debate from many varied stakeholders. The key themes from the working group, which should be amplified in all comment letters, is to “place greater emphasis on providing information with a high degree of usefulness to government authorities based on national AML authorities.” So the working group is pushing for the creation of those national AML priorities and to issue “guidance” for financial institutions on the elements of an effective AML program.

I would caution, however, that guidance should not become a requirement - an age old problem.

Another important theme in the ANPRM is that compliance resources should be reallocated to those priorities mentioned above and a strong statement that there be clarification of supervisory expectations regarding “risk assessments, negative media searches, customer risk categories, and initial and ongoing customer due diligence" - so long overdue.

The focus on the SAR environment is particularly essential and a must respond by all commentators. Whether you comment on the potential for “streamlined SARs” or the ridiculous so-called “ninety-day-rule,” this is an important opportunity to “maximize efficiency, quality, and speed of providing data to government authorities” and should not be neglected.

The central premise for me in the AML infrastructure is “private-public partnerships;” the highlighting by the working group of “enhancing information sharing” is a major component of any effective partnership. The listing of the need for improved feedback, typologies and finally getting the Patriot Act provisions to what some of us expected at the time, and were disappointed on how they turned out, will undoubtedly improve recordkeeping, reporting and investigations.

The last area that the ANPRM covers is the recommendation to “advance regulatory innovations” and we have a great opportunity to raise all issues that need to be considered as institutions of all sizes look to technology to improve services and compliance in a whole host of areas.

 

Required Risk Assessment?

Another interesting issue to consider in the notice is whether there should be an explicit risk-assessment requirement and how that relates to any announced AML priorities. Supporting a requirement may seem counter-intuitive but some AML officials have told me that a regulation would provide clarity and specificity to an area that has been ripe with confusion. The other related challenge would be if we have new national priorities, what happens to non-priorities, especially those that harm smaller institutions more than larger ones?

Comment, comment, comment…

 

The Eleven Questions

You are not limited to addressing just the issues identified in the questions by FinCEN. However, the list is broad enough to give you many opportunities to raise any challenge to the current AML infrastructure. A few questions of note:

  • Question 5 covers risk assessments, carve-outs and any alternatives to a proposed requirement.
  • Question 6 asks about whether and how frequently there should be strategic AML priorities.
  • Finally, Question 8 covers the very relevant issue of the variety of different size institutions and risk profiles and should there be greater flexibility in terms of requirements and oversight.

Our community bank partners have asked for this consideration since the beginning of the BSA. Now is the time to make that case.

With the focus by Congress and now the federal government on true AML reform, don’t sit on the sidelines. Provide comments, recommendations and in some cases alternatives, so we can finally ensure that we meet the original reason for the BSA - getting relevant information in the hands of law enforcement.

There is a reason to believe this can happen...

 

[1] This is a Tim Hardin penned song made famous by Rod Stewart from his 1971 album “Every Picture Tells a Story.” The song was also covered by Neil Young, Johnny Cash and Bobby Darin; among others.