FinCEN proposing AML rules, beneficial ownership duties for banks without federal regulator

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By Brian Monroe
August 25, 2016

The U.S. Treasury is making it clear that banking operations, even those without a federal functional regulator, like non-federally insured credit unions, private banks and certain trust companies, are specifically covered by financial crime compliance obligations in a proposal released Thursday.

The Financial Crimes Enforcement Network (FinCEN), in yet another move to button up actual or perceived vulnerabilities in the US anti-money laundering (AML) framework, is making it explicit that there is no exemption for these institutions in a notice of proposed rulemaking.

In recent years, FinCEN has been more aggressively extending AML program duties to a larger universe of entities, including non-bank residential mortgage lenders and originators, registered investment advisors and certain prepaid card operations. Extending beyond the financial sector, the agency has also used its geographic targeting powers to require real estate, trade and textile companies in several major metropolitan areas to collect more data on certain customers and transactions.

In a short, two paragraph release, FinCEN stated that the notice of proposed rulemaking would apply to an estimated 740 operations nationwide and would include historical AML compliance program requirements and newer duties requiring institutions to capture beneficial ownership data and monitor customer transactions.

Currently, banking operations without a federal functional regulator are already required to file currency transaction reports and suspicious activity reports and maintain certain records, according to the proposal.

FinCEN stated it is issuing the proposal “to ensure consistent” AML coverage across the banking industry and doesn’t foresee these operations encountering significant operational, technical or logistical challenges. The proposal reiterates requirements on the four-pronged AML program, customer identification program and customer due diligence and enhanced due diligence duties.

Based upon current data, FinCEN stated in the proposal that it estimates that these rules will impact approximately:

  • 347 state chartered non-depository trust companies
  • 265 state-chartered credit unions that are not federally insured
  • 12 state-chartered banks and savings and loan or building and loan associations without FDIC insurance
  • 115 International banking entities (EBIs) licensed in Puerto Rico

Overall, the estimated number of affect institutions is 1,151, with an estimated average annual burden of hours per recordkeeper of 40 and an estimated total annual reporting burden of 46,040 hours.

“FinCEN anticipates that banks lacking a federal functional regulator will be able to leverage existing policies, procedures, and internal controls required by other statutory and regulatory requirements to fulfill the proposed obligations,” according to a statement.

The proposed rules are now open for public comments, which can be submitted in writing to FinCEN until October 24th, 2016.