In remarks before the 20th SIFMA AML and Financial Crimes Conference, FinCEN Deputy Director Jamal El-Hindi described ongoing challenges for regulators concerning the Bank Security Act and Anti-Money Laundering ("BSA/AML") framework.
He stated that FinCEN is collaborating closely with the SEC and FINRA to (i) address how competition in the securities and futures sector is affecting transparency and "know your customer" ("KYC") requirements and (ii) track the migration of bad actors between the banking sector and the capital markets sector.
Mr. El-Hindi underscored the importance of suspicious activity reports ("SAR") in initiating investigations, expanding investigations and identifying money laundering trends. He noted that FinCEN tracks how SARs and other BSA information are used, and how that data is used to further refine FinCEN's regulations.
Mr. El-Hindi also emphasized that:
actors using new technologies, including crypto assets, are subject to the same AML principles and requirements as other financial institutions;
social media and messaging platforms establishing cryptocurrencies cannot turn a blind eye to illicit transactions; and
as the financial sector moves forward with new technologies, FinCEN will not allow backsliding on transparency.
Players in the securities and futures space should take note of Mr. El-Hindi's speech. FinCEN has BSA/AML regulatory authority for entities that are otherwise regulated by the SEC, FINRA, and other self-regulatory organizations. FinCEN has brought BSA/AML enforcement actions against capital markets entities that primarily report to other regulators and all signs are that it will continue to do so.
Mr. El-Hindi said he is "troubled" by what he perceives as a lack of transparency in the securities and futures sectors, due in large part to concerns about competition. Mr. El-Hindi may be concerned about two issues in particular: 1) whether a financial institution's reliance on another entity for BSA/AML purposes actually meets the BSA's requirements for reliance; and 2) whether any customer claiming an exemption from disclosing its beneficial owners is in fact permitted to claim that exemption. There is no carve-out from the BSA's obligations due to concerns about competition. Given FinCEN's enforcement authority under the BSA and the concerns Mr. El-Hindi set out in his speech, firms should consider carefully whether they are in fact complying with the BSA.