Following the venerable regulatory tradition of seeking to level the playing field, on August 25, 2016, the Financial Crimes Enforcement Network (FinCEN) proposed new regulations that would extend anti-money laundering (AML) requirements to banks not currently subject to federal regulatory oversight. Under FinCEN regulations, private banks, non-federally insured credit unions and certain trust companies are defined as “banks” for this purpose.

Dinsmore Insight:

  • The proposed rules, if finalized in their current form, should provide the federal government's financial intelligence apparatus with broader information to understand trends and support its AML enforcement mission. For the nonfunctionally regulated sector, AML compliance obligations explicitly applicable to their operations, as well as potential sanctions for noncompliance, all become more clear. Newly covered institutions will need to recalibrate their compliance systems to coincide with FinCEN’s expectations.

Under the current span of AML regulations, principally stemming from the Bank Secrecy Act (BSA), non-functionally regulated banks—meaning those not overseen by a federal banking agency, the SEC or the CFTC—are exempt from comprehensive federal AML compliance program requirements. The proposed regulations would do away with this exemption, requiring the non-functionally regulated to implement a written AML compliance program, including implementation of a Customer Identification Program (CIP), to the same degree as those functionally regulated. Additionally, they would need to comply with the beneficial ownership requirements only recently imposed on all federally regulated banks and financial institutions. (See our May 11, 2016 Client Alert.)

The proposed regulations would add measurably to the limited AML compliance obligations that already apply to non-functionally regulated banks. Although such banks are not currently required to have comprehensive federal AML compliance programs, they must still file currency transaction reports and suspicious activity reports, maintain records according to BSA mandated standards and avoid formation of correspondent banking relationships with foreign shell banks.

To prepare for the coming changes, newly covered institutions can benefit from working with experienced legal counsel and consultants. These experts can perform gap analyses, develop methodologies for risk assessment and transaction monitoring, design effective testing mechanisms, and create relevant training modules.

Comments on the notice of proposed rulemaking, available here, must be submitted to FinCEN by October 24, 2016.

Walter Donaldson