The New York Department of Financial Services (“DFS”) recently proposed a regulation, which imposes new anti-money laundering (“AML”) and sanctions compliance requirements on financial institutions chartered or licensed under New York law. The proposed regulation was published on 16 December 2015 in the official New York State Register, commencing a 45-day notice and public comment period before final issuance.
In recent years, the DFS has conducted a series of investigations into terrorist financing, sanctions violations, and AML compliance at financial institutions. The new regulation is aimed at addressing perceived shortcomings in the transaction monitoring and filtering programs of financial institutions and a lack of robust governance, oversight, and accountability at senior levels of these institutions that contributes to these shortcomings.
Scope and Requirements
The regulation applies to all banks, trust companies, private bankers, savings banks, and savings and loan associations chartered pursuant to the New York Banking Law (the “Banking Law”), all branches and agencies of foreign banking corporations licensed pursuant to the Banking Law to conduct banking operations in New York, and all check cashers and money transmitters licensed pursuant to the Banking Law.
The key requirements of the new regulation include the following:
- Transaction Monitoring. DFS-regulated institutions must maintain a “Transaction Monitoring Program” to detect potential violations of the Bank Secrecy Act (“BSA”) and other AML laws and to identify and report suspicious activities.
- Watch List Filtering. DFS-regulated institutions must maintain a “Watch List Filtering Program” for the purpose of interdicting transactions, before their execution, that are prohibited by applicable sanctions, including the U.S. Department of the Treasury Office of Foreign Assets Control (“OFAC”) and other sanctions lists, politically exposed persons lists, and internal watch lists.
- Annual Certification. DFS-regulated institutions must submit to DFS by April 15th of each year certifications executed by the institution’s chief compliance officer or their functional equivalent. Notably, the regulation provides that a certifying senior officer who files a false certification may be subject to criminal penalties.
The regulation specifies a number of required attributes for each Transaction Monitoring Program and Watch List Filtering Program, including that they must be based on an on-going comprehensive risk assessment of the institution, use all relevant data sources, and be appropriately funded and staffed by trained personnel.
DFS-regulated financial institutions – including non-US banks with licensed branches in New York – will need to review their AML and sanctions practices to ensure compliance with the proposed regulation. In particular, the proposed regulation creates a more granular framework for the chief compliance officers (or their functional equivalent) at these institutions to follow in designing, implementing, and maintaining a program that ensures compliance by their institutions with already-existing federal AML and sanctions requirements.
Any public comments on the proposed regulation must be submitted before January 30, 2016.