On the Hook for AML Compliance: New York Proposes Transaction Monitoring and Filtering Program and Certification Regulation
On December 1, New York Governor Andrew Cuomo announced the proposal of a new Department of Financial Services (DFS) regulation that will require bank and nonbank financial institutions that are licensed to do business in New York to adopt and maintain a comprehensive transaction monitoring and filtering program (TMFP). The program would monitor transactions for possible anti-money laundering (AML) and Office of Foreign Assets Control (OFAC) violations and suspicious activity. Notably, the proposed TMFP regulation, if adopted, also will require senior financial institution compliance personnel to certify annually in writing that their institutions have sufficient systems in place to detect, weed out, and prevent illicit transactions and would subject certifying officials to civil and criminal penalties for “incorrect or false certifications.” The regulation would apply to New York–licensed banks, trust companies, and branches and agencies of foreign banking organizations, as well as New York–licensed check cashers and money transmitters.
The proposed regulation is designed to address what the New York DFS perceives as “serious shortcomings” in the TMFPs of financial institutions during the last few years and a lack of robust senior-level governance, oversight, and accountability at financial institutions. To this end, the proposed regulation specifies in detail the required elements of a satisfactory risk-based TMFP and prescribes a specific written certification that a financial institution’s chief compliance officer (or equivalent) must execute and submit on an annual basis.
The proposed regulation continues the NYDFS’ generally assertive approach to AML and OFAC compliance and enforcement. The senior compliance officer certification requirements, however, inject a startling new level of compliance risk for New York–regulated financial institutions and their compliance officers. Although the implications of the proposed certification requirements are too numerous to explore in depth in this brief space, New York financial institution compliance officers will want to pause and reflect deeply before putting their signatures to such a certification.
There will be a 45-day comment period for the proposed regulation that begins when the proposal is published in the official New York State Register. We think it is safe to predict that the proposed regulation will attract substantial and spirited comment.