This Week in AML

What Guidance May Mean in the Future

This week, Executive Vice President John Byrne, and Creative Director Elliot Berman of the AML RightSource staff talk about the recent action by the Board of Directors of the FDIC to authorize publishing a proposed rule to clarify that supervisory guidance is not regulation. John and Elliot discuss the value of such a rulemaking and the need for all of the agencies which were part of the original statement in 2018 to take similar action.


This Week in AML: October 23, 2020 Transcript

Elliot Berman: Hi, John, how are you this week?

John Byrne: Hi, Elliot. How are you doing?

Elliot Berman: I'm good. Thanks. It's a rainy day here in Milwaukee, but other than that, it's fine.

John Byrne: There you go.

Elliot Berman: So, what I wanted to talk to you about this week is actually something that's a follow-on from something that happened a couple of years ago. If you remember, in September of 2018, the banking agencies issued a statement about recognizing that supervisory guidance does not have the same force of regulation - and that [it's] particularly important in the context of examination findings.

There was a petition filed in November after that guidance was put out (laughs) "guidance on guidance", and this week, the FDIC board of directors adopted a resolution authorizing the agency to publish a proposed rule that basically would codify the 2018 statement, which would be some really nice clarity for the industry. That's a long start, but, did you see that?

John Byrne: Yeah, I saw it. I mean, obviously part of what we've dealt with as a community was, you know, the value of things like the FFIEC manual - it was public, there was transparency, but unfortunately, both anecdotally, and with some metrics, we've heard from our colleagues in the industry that many times examiners would point to sections of the manual and say that you're not fulfilling your obligations, when that's not what that (guidance) was intended to do. There's been some bad court cases that I recall, and this was designed the statement in 2018, was designed to give some comfort, and I think , statements go only so far as sometimes the paper they're written on.

And I think there was a view that I don't think was incorrect, that we need a little more than that. And it seems to me that this is two years later, but this is designed to , make that statement guidance on guidance, as you mentioned, to be more substantive.

Elliot Berman: Yeah - and, the petition was filed. I mean, the administrative procedures act provides that, proper parties can petition agencies that put out guidance to make a rulemaking. And so that's what, this is. The interesting thing about what was published this week as part of the materials around the FDIC board meeting is that the recommending memorandum did not specifically say that it was prepared in conjunction with the other agencies that were party to the 2018 statement.

I have to assume that the other agencies are also moving forward because the FDIC alone, issuing a solitary rule by itself, doesn't really solve the problem. Right.

John Byrne: And you know, some of the aspects of the proposal, I'm reading from a couple of sections here -they want to make sure when you file your comment that, to the FDIC that the notice is sufficiently clear on what types of agency communication constitutes supervisory guidance, and if not, what the agencies can do to clarify this. So I think we should give them credit, for attempting to address sort of an age old issue. I think this would be helpful in that regard. I also separately believe so would examiner training, frankly, and a better understanding in our world of why we have the bank secrecy act. But I think it's important to note that they've done this - I'm with you - I'd like to see what the other agencies are planning, which I assume is a timing thing, but it was interesting.

I saw a couple of trade associations. referenced in trade papers saying, "well, this is helpful - it's a good first step". And I'm like, "Really folks?"

I think you need to be a little more, encouraging. You need to do more than this, but they [FDIC] did this in response to the association's petition so, you know, when you get a win, take the win, right?

Elliot Berman: Right. Will there always be the back and forth about regulation and guidance and what it all means and how it actually operates on the ground? The answer is yes, but I agree with you, you know, stop complaining when they give you a win.

John Byrne: Right. And again, we're all in on the issue.

The issue is, we have to have clarity and transparency on exam oversight and this, this will definitely be helpful. So we urge folks to comment, when this is eventually published in the register - if it hasn't been already in the past couple days - and of course watch the other agencies who will, we assume, do similar NPRs.

Elliot Berman: Yep. All right, John, well, I will talk to you next week. You stay healthy and have a good weekend.

John Byrne: Stay safe, everybody and get out there and vote. Take care, bye.