FinCEN Calls for Comments on Modernization of AML / CFT Regime | Ballard Spahr srl

On December 14, the Financial Crimes Enforcement Network (“FinCEN”) issued a information request (“RFI”), soliciting comments on ways to “streamline, modernize and update” the anti-money laundering (“AML”) and the financing of terrorism (“CTF”) regime of the United States. United. As we will see, the RFI is the latest development in a long investigation of how to try to leverage technology to maximize the utility to the government of reporting and record keeping under the Bank. Secrecy Act (“BSA”), and to minimize compliance. costs imposed on industry. However, as we also discuss, RFI may add fuel to ongoing efforts to expand the coverage and reporting requirements of BSA regulations.

Modernization and AML law

The RFI comes amid a wave of FinCEN regulatory activity and highlights the modernization of the AML / CFT regime as a key priority for the agency. These initiatives, including the RFI, are in part driven by the 2020 Anti-Money Laundering Law (“AMLA”). Specifically, Section 6216 of the AMLA directs the Secretary of the Treasury to seek public comment, consult with other government stakeholders, and generally “undertake a formal review of regulations implementing the Act. BSA and related guidelines ”in order to:

  1. Ensure that the Department of the Treasury provides “appropriate safeguards” on an ongoing basis to protect the financial system against threats, money laundering, terrorist financing and financial crime;
  2. Ensure that BSA regulations continue to require “very useful” reports or records to fight financial crime;
  3. Identify regulations which may be obsolete, redundant or which do not promote a risk-based AML / CFT regime;
  4. Identify regulations that do not meet international standards in the fight against money laundering, terrorist financing, serious tax evasion or other financial crimes; and
  5. Make appropriate changes to regulations and guidelines to improve the effectiveness of the AML / CFT regime.

Article 6216 is the last provision of a 16-part article of the AML Law entitled “Modernizing the system for combating money laundering and the financing of terrorism”. Like us blogged, the other provisions in this section are related but more focused, and in part require FinCEN to collect data and make conclusions on the utility and compliance costs of suspicious activity report (“SAR”) filings and currency transaction report (“CTR”); whether the current cash deposit thresholds for these reports are appropriate; and – most importantly – how to improve government feedback to reporting institutions on the usefulness of particular SAR declarations.

Efforts to “modernize” the AML / CFT regime have been underway for years. Last year, FinCEN published a Prior notice of proposed regulations seeking comment on what he described as “a wide range of issues relating to possible regulatory changes to the [BSA]Because, according to the ANPRM, the existing BSA regulations have failed to keep pace with technological innovations. As a result, financial institutions spend substantial resources implementing programs that inefficiently generate large amounts of information that often do not serve BSA’s purpose of providing information with a “high degree of usefulness.” To government authorities.

In addition, the RFI summarizes other modernization efforts prior to the AML law, emphasizing the fact that article 6216 represents the culmination of a long and sometimes uncertain process:

Many provisions of the anti-money laundering law codify and elaborate on existing or previous Treasury initiatives in innovation, regulatory reform and industry engagement, in response to evolving threats. These various efforts include: BSA Advisory Group; a Interagency Anti-Money Laundering Working Group headed by the Under Secretary of the Treasury for Terrorism and Financial Intelligence; a regulatory reform task force for the Treasury and Federal Banking Agencies (FBA); FinCEN exchange; study the value of BSA data; and the FinCEN Innovation Hours Initiative. FinCEN has also released final rules in recent years that aimed to address AML regulatory loopholes that represent vulnerabilities in the US financial system that illicit actors could exploit. In addition, to fulfill its obligations under the Red Tape Reduction Act, FinCEN issued several opinions seeking public opinion in order to better understand and estimate the burden and cost of various BSA regulations. Many of the comments received by FinCEN are relevant to the formal review required under Article 6216 of the AML Act.


Unsurprisingly, the RFI emphasizes technological innovation. In a press release accompanying the RFI, FinCEN Acting Director Himamauli Das said, “We recognize that the threat landscape of illicit financing continues to evolve and that technology and innovation are now playing a role. important in the efficient application of resources to combat illicit financing. I urge all relevant stakeholders to review the RFI and comment on the ways in which FinCEN can modernize AML / CFT regulations and guidance and better promote a risk-based approach to AML compliance. / FT. The RFI reiterates this point of view and declares in the same way that “FinCEN is particularly interested in new and innovative approaches for [BSA] compliance that promote a risk-based approach to protect the financial system against threats to national security posed by various forms of financial crime.

The RFI therefore invites the public to propose modifications to the regulations and guidelines of the BSA that would make them more effective. The RFI, perhaps recognizing the scope of its subject, tries to be precise about the information it seeks. In particular, the RFI defines “efficiency” as including the ability of financial institutions to focus their resources on providing more useful information to law enforcement, communicating very useful information in a timely manner, or reducing redundancies and information of little use to the police. . In pursuit of this objective, the RFI provides 26 questions on the five objectives set out by the AML law mentioned above.

The RFI suggests that FinCEN may be developing practical advice regarding the best use cases for emerging technologies and, in particular, how financial institutions can take advantage of these technologies to improve their surveillance and compliance programs. For example, RFI asks if BSA regulations or guidelines could be made more effective in light of digital ID, machine learning and artificial intelligence – in a July 2021 report by the Group of financial action, artificial intelligence and machine learning were touted as a breakthrough. technologies that can help combat illicit financial threats in multiple ways, including identifying and verifying customers, analyzing transactional behavior, and detecting abnormal behavior.

For these goals to be successful, however, it is incumbent on regulators – and, perhaps more importantly, front-line examiners of financial institutions – to allow financial institutions a margin of error in the implementation of any new technology. . Some financial institutions may be reluctant to pursue technological innovation in the day-to-day implementation of their AML compliance programs because they are concerned that examiners will react negatively or make unfavorable findings against the financial institution if the new technology creates unforeseen problems. Likewise, some financial institutions may fear that new technologies will reveal unintentional historical compliance failures that otherwise would not have been discovered, and which would then haunt the financial institution in the absence of some sort of reporting sphere. regulatory security. For innovation to succeed and be used to a significant degree, the ambitious language of the RFI must be matched with a temperament to the expectations and demands of regulators on the ground.

Further, and despite repeated references to efficiency and innovation, it would be a mistake to assume that the inevitable net result of RFI will be reduced or more streamlined regulation. The first stated objective of Section 6216 is the protection of the financial system against threats of money laundering and terrorist financing. Accordingly, “FinCEN invites comments regarding financial services and related activities that present a risk of exploitation by illicit actors or pose a risk to the US financial system, but which may not be addressed, in whole or in part. part, by existing regulations ”. Likewise, although the RFI asks about the usefulness of the reports and records currently required, it also asks if there are “any reports or records which should not currently be filed or retained and which, if necessary, would be very useful in fighting crime? ”Accordingly, and in line with other FinCEN efforts – particularly in the areas of cryptocurrency and real estate – Section 6216 can ultimately be used to extend BSA coverage and requirements.

Comments are due by February 14th.

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