The Financial Crimes Enforcement Network (FinCEN) has issued a proposed rule aimed at reforming anti-money laundering (AML) and countering the financing of terrorism (CFT) programs under the Bank Secrecy Act. The proposal seeks to reduce compliance burdens by promoting risk-based and reasonably designed programs, creating greater consistency in evaluating financial institutions for effectiveness.
Reducing Red Tape
The proposed rule is intended to refocus compliance obligations on perceived effectiveness, distinguishing between program design failures and implementation deficiencies. This approach would shift the emphasis from paperwork volume to actual illicit finance threats, allowing financial institutions to identify and evaluate their own risks more effectively.
Increased Transparency and Oversight
The proposal also clarifies expectations for independent testing and audit functions, ensuring that examiners do not substitute their subjective judgment for financial institutions’ risk-based and reasonably designed AML/CFT programs. FinCEN would play a more central role in AML/CFT supervision through a new notice and consultation framework with federal banking supervisors regarding significant supervisory actions.
Criticism from Transparency International
While welcoming the proposal, Transparency International U.S. expressed concerns about the potential weakening of oversight and risk-assessment features. The organization noted that the proposal could make it harder for regulators to step in when financial institutions have weak AML controls, suggesting that serious action would usually be reserved for especially large or widespread failures.
Missed Opportunities
Transparency International U.S. also criticized the proposal for not providing more explicit attention to intermediaries and other professional “enablers” of money laundering and corruption, which are often key warning signs in bribery, kleptocracy, sanctions evasion, and other complex dirty money schemes.
Public Comment Period
The proposed rule is now open for public comment for 60 days after publication in the Federal Register. The public will have the opportunity to provide input on the proposal before it is finalized.
Judge Vacates FinCEN’s Title Insurance AML Rule
In a separate action, a federal judge in Texas vacated FinCEN’s title insurance AML rule, citing exceeded statutory authority. The rule required title insurance companies to report details of millions of residential real estate transactions, but the court found that FinCEN had overstepped its authority.
- The proposed rule aims to reduce compliance burdens by promoting risk-based and reasonably designed programs.
- The proposal clarifies expectations for independent testing and audit functions, ensuring transparency and oversight.
- Transparency International U.S. expressed concerns about the potential weakening of oversight and risk-assessment features.
- The proposed rule is open for public comment for 60 days after publication in the Federal Register.
The proposed FinCEN rule represents a significant shift in the approach to AML/CFT compliance, focusing on effectiveness rather than paperwork. As the public comment period opens, stakeholders will have the opportunity to weigh in and shape the final outcome of this proposal.
