The Financial Crimes Enforcement Network (FinCEN) has begun designing a new Bank Secrecy Act (BSA) suspicious activity report database (the Database). The BSA requires, among other things, financial institutions – including mutual funds – to report suspicious transactions by filing Suspicious Activity Reports (SARs). The Database will be a new electronic SAR filing system. FinCEN recently invited comment on the Database’s proposed data fields (the Proposal) that will support electronic SAR filings. FinCEN stated in its notice and request for comment that it “does not propose any new regulatory requirements nor changes to the requirements related to suspicious activity reporting.”

In response to FinCEN’s request for comment, some industry experts expressed concern over the breadth of the changes FinCEN’s Proposal may entail. Specifically, the ICI commented that implementing the Proposal would require mutual funds and their agents to expend significant financial and personnel resources. This is because the Proposal includes a number of new data fields, which will change how SAR filers collect and process suspicious activity information. Mutual funds and their agents may also need to revise their policies, procedures and systems that support suspicious activity reporting to ensure compliance with the new system. The Proposal could impact electronic systems already used by funds to manage the SAR filing process by necessitating technical changes and personnel training. The impact on any particular mutual fund will vary depending on, among other things, whether the fund currently uses a customized or proprietary system for SAR filing. Industry experts have requested more detail concerning the information technology specifications of FinCEN’s Proposal so as to fully assess the impact and cost of the proposed changes.

The ICI also expressed concern that completing data fields will require subjective determinations, adding complexity and time to filing SARs. Certain proposed data fields would require the person completing the report to classify suspicious activity information by checking a box, which would require that person to use his or her discretion in analyzing suspicious behavior. For these data fields, reasonable people could come to different conclusions (i.e., check different boxes) based on the same information. This could cause inconsistencies among and within reporting institutions. Making such subjective determinations may also lengthen the time it takes the filer to complete a SAR. Industry experts expressed concern that variations in responses will diminish law enforcement’s ability to gain meaningful information from SARs. It may also cause government examiners to scrutinize or criticize filers unnecessarily for such inconsistencies. Based on these issues, industry experts recommend that FinCEN revise or eliminate some of the proposed data fields.  

The ICI has urged FinCEN to maintain an open dialogue with the financial services industry and, should FinCEN put the Database into operation, allow for an extended implementation period of 18 months.  

Mutual fund anti-money laundering officers in particular should be aware of the foregoing proposed changes and challenges they may pose. Drinker Biddle is following these issues and will keep you updated.  

FinCEN’s notice and request for comment, which contains information about the proposed Database, can be found at http://edocket.access.gpo.gov/2010/pdf/2010-26038.pdf. The ICI’s letter in response can be found here: http://www.ici.org/pdf/24793.pdf.