The Financial Crimes Enforcement Network is proposing to
require banks that do not have federal functional regulators to institute
customer identification and anti-money laundering programs and satisfy account
beneficial owners identification duties. The agency estimates that approximately
625 financial institutions that currently are exempt from comparable rules for federally
regulated financial institutions would be covered by the proposed rules.
Comments on the proposal are due by Oct. 24, 2016. Banks
without a federal functional regulator would be required to implement a written
AML program approved by their boards of directors or by equivalent functional
units within the banks. If customer due diligence requirements for
verifying the identity of beneficial owners of their legal entity customers are
imposed on non-federally regulated banks, FinCEN seeks comment on what time
periods should be given to these institutions to implement the new standards.
FinCEN says its analysis has revealed five types of
financial institutions that are covered by the regulatory definition of “bank” but
are not currently subject to all of the Bank Secrecy Act obligations:
- state-chartered nondepository trust companies;
- state-chartered credit unions that are not federally insured;
- private banks;
- state-chartered banks and savings associations that are not federal insured; and
- international banking entities.
It is difficult to count precisely the number of institutions that would be covered by the proposal, FinCEN concedes. Also, the numbers of some types are small—there appear to be no more than a dozen covered state-chartered banks and thrifts, while there is “at least one private bank.” However, there may be additional companies that the regulation would consider to be banks that do not have federal regulators, the proposal notes. In fact, the proposal asks for information on covered banks that FinCEN has not identified.
New requirements. According to FinCEN, banks without federal
functional regulators are just as vulnerable to being used for money laundering
or terrorism financing as banks with federal regulators. Uniform requirements
would make it more difficult for criminals to locate banks with less rigorous
AML programs.
Most of the banks covered by the proposal are likely already
to have some form of AML program, FinCEN believes, so the rule would not be
unduly burdensome.
For reasons of system vulnerability and regulatory
consistency, all banks should have customer identification and beneficial
ownership identification programs, according to FinCEN.
The proposal would take effect chiefly by removing
exemptions that currently benefit banks without federal regulators, so it would
bring about a consistent regulatory approach for all banks regardless of what
agency is responsible for their regulation. Since the expectation that BSA
programs would be appropriate for each bank’s specific risk profile is
maintained, the specific programs adopted by banks without federal regulators
might not be the same as those adopted by other banks.
Currently applicable obligations. Banks without federal
functional regulators are not exempt from all BSA duties, the proposal notes.
They currently are required to file currency transaction reports and suspicious
activity reports. Also, they are prohibited from allowing foreign shell banks
to have correspondent accounts and they must obtain information on the
ownership of foreign banks.
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