FinCEN overhaul to AML rules would bring clarity, experts say

Dive Brief:

The Financial Crimes Enforcement Network (FinCEN) requested public feedback regarding potential regulatory amendments to the Bank Secrecy Act's anti-money laundering (AML) rules Wednesday.
The agency, which is a department of the U.S. Treasury, said the proposals under consideration will provide financial institutions with additional flexibility in addressing evolving AML threats, and will result in the "enhanced effectiveness and efficiency" of the AML program.
Experts say the proposals will provide welcome clarity for banks' compliance programs. However, not all institutions will favor the "one size fits all" solution.

Dive Insight:

The agency said it wants to ensure the AML program adapts to address the evolving threats of illicit finance, money laundering, terrorist financing and related crimes — some of which the agency says have changed considerably since the Bank Secrecy Act's initial passage in 1970.

Many of the proposed changes would bring clarity to areas with which financial institutions struggle and have been the cause of enforcement actions, said Julie Copeland, partner at StoneTurn, a global advisory firm that specializes in regulatory, risk and compliance issues, investigations and business disputes.

"For example, clarifying the requirements and supervisory expectations regarding risk assessments, negative news searches, customer risks categories, et cetera, would be enormously helpful and would reduce the possibility that one regulatory body has a different interpretation of customer risk categories," she said.

FinCEN's proposal to define an "effective and reasonably designed" AML program would also reduce regulatory arbitrage, Copeland said. "The devil will be in the details of how this is defined," she said.

In its filing, FinCEN suggested publishing a national list called "Strategic Anti-Money Laundering Priorities" at regular intervals to identify high-risk areas in AML compliance.

A national bulletin would provide welcome clarity for banks that have had to define the government's priorities, Copeland said.

But not all banks will be happy with the concept of "one size fits all" in several of the agency's proposals and will likely seek to tailor the proposals to different financial institution types and sizes, she said.

The effectiveness of Bank Secrecy Act compliance is often difficult to quantify and define, Braddock Stevenson, counsel at O'Melveny & Myers, said in an email.

"This [advanced notice of proposed rulemaking] represents a crucial step forward in implementing an actual solution," said Stevenson, who served as a deputy in FinCEN's enforcement division.

"Without a method to quantify or define 'effectiveness,' these efforts would really become a question of who can tell their regulator the best 'compliance program' story. FinCEN's use of Nationally Set AML priorities would help create a clear goal post for defining an effective program," Stevenson wrote.

"However, easier said than done, as the breadth of the U.S. financial system means that money laundering priorities can be vastly different by state," he said. "Nationally set AML priorities that don't account for state specific priorities may leave some institutions and law enforcement on the outside looking in."