Financial Agencies Release Joint Statement on Innovative Efforts to Combat Money Laundering and Terrorist Financing
On December 3, 2018, the Board of Governors of the Federal Reserve System (“Federal Reserve), the Federal Deposit Insurance Corporation (“FDIC”), the Financial Crimes Enforcement Network (“FinCEN”), the National Credit Union Administration (“NCUA”), and the Office of the Comptroller of the Currency (“OCC”) (collectively, “agencies”) released a joint statement on innovative efforts to combat money laundering and terrorist financing.
In the joint statement, the agencies encouraged banks to consider and, if appropriate, responsibly implement innovative approaches with respect to their anti-money laundering (“AML”) and Bank Secrecy Act (“BSA”) compliance obligations. In particular, the agencies discussed innovative internal financial intelligence units that may be tasked with “identifying complex and strategic illicit finance vulnerability and threats.” The agencies also discussed artificial intelligence and digital identity technologies and recognized the value of these innovative approaches in strengthening banks’ BSA/AML compliance programs, as well as potentially reducing compliance costs.
The joint statement also directly addressed pilot programs to implement innovative approaches, stating that any BSA/AML issues discovered as the result of a pilot program will not necessarily result in supervisory action and that the agencies will not assume these issues are indicative of deficiencies in the bank’s existing BSA/AML compliance program. Rather, the agencies will examine the Bank’s existing BSA/AML compliance program independent of the results of the pilot program. The agencies also made clear that they would not penalize banks that choose not to pursue these innovative approaches, but otherwise maintain an effective BSA/AML compliance program.
The agencies cautioned banks to evaluate whether, and at what point, these innovative approaches are sufficiently developed to replace existing BSA/AML compliance procedures. Banks should also consider compliance with privacy laws and information security issues. To the extent these innovative services are offered in conjunction with a third-party consultant, the agencies urged banks to consider and address third-party risk management.
According to the statement, FinCEN will consider requests for exceptions to the substantive requirements in 31 C.F.R. ch. X, which includes, among other things, AML regulations for banks.
The joint statement follows recent senate testimony on BSA/AML reforms, which was discussed in a separate Cov Financial Services blog post. During this hearing, the OCC appeared to support providing some regulatory relief to financial institutions in the form of increased SAR and CTR reporting thresholds, while FinCEN cautioned that raising such thresholds could result in substantial loss of the data available to law enforcement. The agencies’ joint statement demonstrates that although they may have their differences when it comes to BSA/AML legislative reform, the agencies are finding common ground with respect to innovative efforts in AML/BSA compliance programs. The agencies’ encouragement of these innovative efforts may be a path forward to reducing compliance burdens on banks while enhancing the type and quality of information available to law enforcement.