Fincen Considers Ways to Improve Effectiveness of AML Programs

FINCEN CONSIDERS WAYS TO IMPROVE EFFECTIVENESS OF AML PROGRAMS

The Financial Crimes Enforcement Network (FinCEN) has issued an Advance Notice of Proposed Rulemaking (ANPR) outlining potential regulatory amendments under the Bank Secrecy Act (BSA).[1] According to FinCEN, the proposals in the ANPR are intended to give financial institutions “greater flexibility in the allocation of resources and greater alignment of priorities across industry and government,” resulting in “enhanced effectiveness and efficiency” of anti-money laundering (AML) programs.

The ANPR seeks comment on incorporating an “effective and reasonably designed” AML program component to empower financial institutions to allocate resources more effectively. The potential regulatory amendments described in the ANPR would make clear that an “effective and reasonably designed” program is one that:

assesses and manages risk as informed by a financial institution’s own risk assessment process, including consideration of AML priorities to be issued by FinCEN consistent with the proposed amendments;

provides for compliance with BSA requirements; and

provides for the reporting of information with a high degree of usefulness to government authorities.

In addition, the ANPR seeks comment on proposals to impose an explicit requirement for a risk assessment process and for the Director of FinCEN to issue, every two years, a list of national AML priorities, to be called FinCEN’s Strategic Anti-Money Laundering Priorities.

The ANPR, which is of relevance to a wide range of financial institutions and industries (including banks, money services businesses, casinos, securities broker-dealers, and commodities brokers), is part of a larger effort by FinCEN and other agencies to “collectively re-examine the BSA regulatory framework and the broader national AML regime.” According to FinCEN, efforts to modernize the BSA’s AML regime are rooted in a recognition of the “significant innovations in the financial sector and the development of new business models, products, and services, fueled by rapid technological change.” FinCEN seeks to ensure that regulatory requirements adapt to evolving threats.

The ANPR seeks input on eleven detailed questions, which are listed in the accompanying annex. Comments are due to FinCEN by November 16, 2020.

Questions for Comment

Does this ANPR make clear the concept that FinCEN is considering for an “effective and reasonably designed” AML program through regulatory amendments to the AML program rules? If not, how should the concept be modified to provide greater clarity?

Are this ANPR’s three proposed core elements and objectives of an “effective and reasonably designed” AML program appropriate? Should FinCEN make any changes to the three proposed elements of an “effective and reasonably designed” AML program in a future notice of proposed rulemaking?

Are the changes to the AML regulations under consideration in this ANPR an appropriate mechanism to achieve the objective of increasing the effectiveness of AML programs? If not, what different or additional mechanisms should FinCEN consider?

Should regulatory amendments to incorporate the requirement for an “effective and reasonably designed” AML program be proposed for all financial institutions currently subject to AML program rules? Are there any industry-specific issues that FinCEN should consider in a future notice of proposed rulemaking to further define an “effective and reasonably designed” AML program?

Would it be appropriate to impose an explicit requirement for a risk-assessment process that identifies, assesses, and reasonably mitigates risks in order to achieve an “effective and reasonably designed” AML program? If not, why? Are there other alternatives that FinCEN should consider? Are there factors unique to how certain institutions or industries develop and apply a risk assessment that FinCEN should consider? Should there be carve-outs or waivers to this requirement, and if so, what factors should FinCEN evaluate to determine the application thereof?

Should FinCEN issue Strategic AML Priorities, and should it do so every two years or at a different interval? Is an explicit requirement that risk assessments consider the Strategic AML Priorities appropriate? If not, why? Are there alternatives that FinCEN should consider?

Aside from policies and procedures related to the risk-assessment process, what additional changes to AML program policies, procedures, or processes would financial institutions need to implement if FinCEN implemented regulatory changes to incorporate the requirement for an “effective and reasonably designed” AML program, as described in this ANPR? Overall, how long of a period should FinCEN provide for implementing such changes?

As financial institutions vary widely in business models and risk profiles, even within the same category of financial institution, should FinCEN consider any regulatory changes to reflect such differences in risk profile? For example, should regulatory amendments to incorporate the requirement for an “effective and reasonably designed” AML program be proposed for all financial institutions within each industry type, or should this requirement differ based on the size or operational complexity of these financial institutions, or some other factors? Should smaller, less complex financial institutions, or institutions that already maintain effective BSA compliance programs with risk assessments that sufficiently manage and mitigate the risks identified as Strategic AML Priorities, have the ability to “opt in” to making changes to AML programs as described in this ANPR?

Are there ways to articulate objective criteria and/or a rubric for examination of how financial institutions would conduct their risk-assessment processes and report in accordance with those assessments, based on the regulatory proposals under consideration in this ANPR?

Are there ways to articulate objective criteria and/or a rubric for independent testing of how financial institutions would conduct their risk-assessment processes and report in accordance with those assessments, based on the regulatory proposals under consideration in this ANPR?

A core objective of the incorporation of a requirement for an “effective and reasonably designed” AML program would be to provide financial institutions with greater flexibility to reallocate resources towards Strategic AML Priorities. FinCEN seeks comment on whether such regulatory changes would increase or decrease the regulatory burden on financial institutions. How can FinCEN, through future rulemaking or any other mechanisms, best ensure a clear and shared understanding in the financial industry that AML resources should not merely be reduced as a result of such regulatory amendments, but rather should be reallocated to higher priority areas?