Credit Union Regulatory Guidance Including: NCUA, CFPB, FDIC, OCC, FFIEC

Samantha: Hello, this is Samantha Shares.

This episode covers the Interagency
Statement on the Issuance of the AML/CFT

Program Notices of Proposed Rulemaking

The following is a word for
word real audio of that item.

This podcast is educational
and is not legal advice.

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And now the Notice of Proposed Rulemaking

On June 28, 2024, the U.S.

Department of the Treasury’s Financial
Crimes Enforcement Network (FinCEN)

issued a Notice of Proposed Rulemaking
that proposes amendments to anti-money

laundering/countering the financing of
terrorism (AML/CFT) program requirements

for all financial institutions subject to
the Bank Secrecy Act (BSA) with AML/CFT

program obligations.1 Additionally, the
Board of Governors of the Federal Reserve

System, the Federal Deposit Insurance
Corporation, the National Credit Union

Administration, and the Office of the
Comptroller of the Currency (collectively,

the “Agencies”) issued NPRMs today that
propose amendments to their respective

AML/CFT program (currently referred
to as “BSA compliance programs”) rules

for their supervised institutions
(collectively, with FinCEN’s AML/CFT

Program NPRM, “AML/CFT Program NPRMs”).

Covered financial institutions,
including banks,2 are already required

to have BSA compliance programs, but
the AML/CFT Program NPRMs would amend

the requirements based, in part, on
changes enacted by the Anti-Money

Laundering Act of 2020 (the “AML Act”).

The Agencies are proposing to make
changes to their respective BSA compliance

program rules to align those rules
with FinCEN’s proposed revisions to

its existing program rule for banks.

In that way, banks would comply
with one standard rather than

differing program rule requirements
between FinCEN and the Agencies.

The amendments also would incorporate
certain long standing supervisory

expectations and technical amendments.

FinCEN and the Agencies recognize that
the issuance of the AML/CFT Program

NPRMs is one of multiple steps needed
to fully implement the AML Act and to

carry out Congress’ purposes set out
in the AML Act in requiring financial

institutions to establish reasonably
designed and risk-based AML/CFT programs.

In light of this key milestone, FinCEN
and the Agencies issue this statement

to highlight how the proposed amendments
are intended to complement and build

upon current and anticipated AML Act
implementation efforts, such as how

the proposed amendments would codify
into regulation existing risk-based

practices and continue to foster the
risk-based nature of AML/CFT programs.

This statement does not alter
existing BSA/AML legal or regulatory

requirements, nor does it establish
new supervisory expectations.

This statement is also not intended
to signal any particular outcome

or emphasis in the final rule.

Fulfilling the Purposes of the AML Act

In addition to implementing certain
substantive provisions of the AML Act,

FinCEN and the Agencies intend for the
AML/CFT Program NPRMs, and other AML Act

implementation efforts, to further the
AML Act’s overarching purposes in section

6002, including “to modernize anti-money
laundering and countering the financing

of terrorism laws to adapt the government
and private sector response to new and

emerging threats.”3 The changes proposed
in the AML/CFT Program NPRMs would further

other purposes of the AML Act as well.

These purposes include “encourage[ing]
technological innovation and the

adoption of new technology by financial
institutions to more effectively counter

money laundering and the financing of
terrorism”, and “reinforc[ing] that the

anti-money laundering and countering
the financing of terrorism policies,

procedures, and controls of financial
institutions shall be risk-based.”4

The AML/CFT Program NPRMs propose
to support these purposes by

requiring financial institutions
to establish, implement, and

maintain effective, risk-based, and
reasonably designed AML/CFT programs.

FinCEN and the Agencies intend for the
changes proposed in the AML/CFT Program

NPRMs to reinforce the focus of an
AML/CFT regime toward more effective,

risk-based, and reasonably designed
programs aimed at preventing the flow of

illicit funds in the financial system and
providing highly useful reports or records

to relevant government authorities.5

Key Proposed Changes to AML/CFT Programs

Purpose of AML/CFT Programs

To provide further clarity, the
AML/CFT Program NPRMs include a

new statement of the purpose of
AML/CFT program requirements.

This purpose would be to ensure that
a financial institution implements an

effective, risk-based, and reasonably
designed AML/CFT program to identify,

manage, and mitigate illicit finance
activity risks that: complies with the

BSA and the requirements and prohibitions
of its implementing regulations;

focuses attention and resources in a
manner consistent with the risk profile

of the financial institution; may
include consideration and evaluation of

innovative approaches to meet its AML/CFT
compliance obligations; provides highly

useful reports or records to relevant
government authorities; protects the

financial system of the United States
from criminal abuse; and safeguards the

national security of the United States,
including by preventing the flow of

illicit funds in the financial system.

Risk Assessment Process Requirements

The AML/CFT Program NPRMs would require
financial institutions to establish

a risk assessment process to serve
as the basis of the AML/CFT program.

Specifically, the AML/CFT Program NPRMs
would require a financial institution’s

risk assessment process to identify,
evaluate, and document the financial

institution’s money laundering, terrorist
financing, and other illicit finance

activity (collectively “ML/TF”) risks,
including consideration of: (1) the

AML/CFT Priorities6 issued by FinCEN,
as appropriate; (2) the ML/TF risks

of the financial institution based on
the financial institution’s business

activities, including products, services,
distribution channels, customers,

intermediaries, and geographic locations;
and (3) reports filed by the financial

institution pursuant to 31 CFR chapter X.

The AML/CFT Program NPRMs also would
require financial institutions to

update their risk assessments using
the process proposed in the NPRMs on a

periodic basis, including, at a minimum,
when there are material changes to a

financial institution’s ML/TF risks.

The proposed risk assessment requirement
would ensure that financial institutions

integrate the results of a risk assessment
process into their AML/CFT programs.

The risk-based nature of the proposed
changes is intended to enable financial

institutions to better focus their
attention and resources in a manner

consistent with their risk profiles.

It is expected that in doing so,
financial institutions would implement

more effective, risk-based, and
reasonably designed AML/CFT programs

that can better address law enforcement
and national security needs and

direct private compliance funds and
resources in a more risk-based manner.

Fostering Innovative Approaches
to BSA Compliance Obligations

The AML Act also encourages
technological innovation and supports

financial institutions in effectively
innovating, testing, and adopting

new technologies and approaches.

FinCEN and the Agencies have long
recognized that responsible innovation,

including new ways of using existing
tools or adopting new technologies, may

help financial institutions identify
and report possible ML/TF by enhancing

the effectiveness and efficiency of
financial institutions’ AML/CFT programs.7

In support of these goals, the AML/CFT
Program NPRMs include a provision that

a financial institution’s internal
policies, procedures, and controls may

provide for a financial institution’s
consideration, evaluation, and,

as warranted by the institution’s
risk profile and AML/CFT program,

implementation of innovative approaches
to meet BSA compliance obligations.

In addition, FinCEN and the Agencies
will continue to explore various

regulatory processes to encourage and
facilitate financial institutions’ use

of technology or innovative approaches
to meet BSA compliance obligations.

In support of this objective, FinCEN
and the Agencies intend to build on

existing partnerships with the private
sector and to engage with the private

sector on innovation, including through
the BSA Advisory Group Subcommittee

on Innovation and Technology.

Other Notable Changes

The AML/CFT Program NPRMs would require
financial institutions to have a presence

in the United States,8 specifying that
the duty to establish, maintain, and

enforce the AML/CFT program must remain
the responsibility of, and be performed

by, persons in the United States who are
accessible to, and subject to oversight

and supervision by, FinCEN and the
appropriate Federal functional regulator.

The AML/CFT Program NPRMs would provide
clarifying revisions for financial

institutions supervised by the Agencies,
including that independent testing

be conducted by qualified personnel
of the financial institution or by

a qualified outside party and for
an AML/CFT program to be effective,

reasonably designed, and risk based, the
compliance officer must be qualified.

The AML/CFT Program NPRMs would add
customer due diligence (CDD) as a required

component of the Agencies’ AML/CFT
compliance program rule requirements.

CDD is currently a required component
in FinCEN’s rule, and, therefore,

banks are already required to comply
with CDD under FinCEN’s rules.

Broader AML Act Implementation

FinCEN and the Agencies recognize
that the AML/CFT Program Rule NPRMs

represent one part of the significant
reform envisioned in the AML Act.

As such, FinCEN and the Agencies intend
for the proposed rules to work in

concert with the broader implementation
of the AML Act, as described below.

Supervision and Examination

FinCEN and the Agencies, as applicable,
are committed to fully implementing the

supervision- and examination-related
measures in the AML Act.

In particular, section 6101 of the
AML Act requires that the review by a

bank of the AML/CFT Priorities and the
incorporation of those priorities, as

appropriate, into its risk-based AML/CFT
program, be included as a measure on which

a bank is supervised and examined.9 As
indicated previously in the Interagency

Statement on the Issuance of the AML/CFT
National Priorities, the Agencies and

FinCEN recognize the need to provide
revised regulations and timely guidance

to assist banks in complying with the BSA.

In addition, the Agencies are committed
to working with FinCEN to develop any

necessary corresponding guidance and
examination procedures for examiners.10

Further, section 6307 of the AML
Act requires the Secretary of the

Treasury, in consultation with
the Federal Financial Institutions

Examination Council (FFIEC), FinCEN,
and Federal, State, Tribal, and local

law enforcement agencies, to establish
appropriate training materials and

standards and provide examiner training
on various risk and AML/CFT topics.11

As members of the FFIEC, the Agencies
stand ready to consult with FinCEN on

this examiner training requirement.

Measures to Enhance Feedback Loops

FinCEN and the Agencies also recognize
the importance of feedback to financial

institutions on BSA-related reporting
provided by financial institutions.

To that end, FinCEN and the Agencies
intend for the proposed changes in

the AML/CFT Program NPRMs to lay the
groundwork for AML/CFT programs to

enhance iterative feedback—or feedback
loops— between financial institutions

and law enforcement to improve the
effectiveness of the AML/CFT programs.

While various feedback loops currently
exist between the United States

government and financial institutions,
they are limited in scope, frequency,

and type of feedback shared.

FinCEN and the Agencies are committed
to working together to support

risk-based AML/CFT programs by
enhancing feedback loops in this

collective effort to protect the U.S.

financial system and safeguard the
national security of the United States.

Additional AML Act Reviews

The AML Act also requires FinCEN to
conduct certain reviews related to the

existing AML/CFT framework, and FinCEN is
committed to working with the Agencies in

their consultative role on these efforts.

Among these, pursuant to AML Act
section 6216, FinCEN, in consultation

with the Agencies and other government
stakeholders, is conducting a broad

review of AML/CFT regulations and
guidance and plans to issue a report to

Congress that contains administrative
or legislative recommendations

and fulfills certain objectives.

FinCEN also intends to complete its
review regarding streamlined BSA

reporting requirements, including
Currency Transaction Reports and

Suspicious Activity Reports, pursuant
to AML Act section 6204, as well as

its review regarding dollar reporting
thresholds for applicable BSA

reports under AML Act section 6205.

These AML Act reviews and reports,
including their results, recommendations,

and ultimately any implementation, would
complement and build upon the proposed

changes to AML/CFT programs in the
AML/CFT Program NPRMs to promote a more

effective and risk-based AML/CFT regime.

Corporate Transparency Act

The AML/CFT Program NPRMs are
unrelated to the implementation of

the Corporate Transparency Act (CTA),
which aims to improve financial

transparency and prevent criminals
and terrorists from misusing companies

to disguise their illicit activities
and launder their ill-gotten gains.

As required by the CTA, and in
consultation with the Agencies, FinCEN

intends to issue a proposed rule
to revise the beneficial ownership

information collection requirements
for legal entity customers.

Conclusion

The AML Act envisions
significant reforms to the U.S.

AML/CFT regime, and the proposed
amendments in the AML/CFT Program

NPRMs would set a critical foundation
for potential future changes in the

AML/CFT framework in the multi-step,
multi-year implementation of the AML Act.

FinCEN and the Agencies recognize
that banks already have BSA compliance

programs with many of the features
described in the AML/CFT Program NPRMs.

With the AML/CFT Program NPRMs and this
joint statement, FinCEN and the Agencies

are communicating their commitment to
the AML Act’s purposes of modernizing the

AML/CFT regime, encouraging innovation to
more effectively counter money laundering

and the financing of terrorism, improving
law enforcement and national security

objectives, and further safeguarding the
financial system from illicit activity.

This concludes the Notice
of Proposed Rulemaking

If your Credit union could use assistance
with your exam, reach out to Mark Treichel

on LinkedIn, or at mark Treichel dot com.

This is Samantha Shares and
we Thank you for listening.