The US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) has announced a proposed rule to strengthen and modernize financial institutions’ anti-money-laundering and countering-the-financing-of-terrorism (AML/CFT) programs.

While financial institutions have long maintained AML/CFT programs under existing regulations, the proposed rule would amend those regulations to explicitly require that such programs be effective, risk-based, and reasonably designed, enabling financial institutions to focus their resources and attention in a manner consistent with their risk profiles.

The proposed amendments are based on changes to the Bank Secrecy Act (BSA) as enacted by the Anti-Money Laundering Act of 2020 (AML Act) and are a key component of Treasury’s objective of building a more effective and risk-based AML/CFT regulatory and supervisory regime.

Deputy Secretary of the Treasury Wally Adeyemo said that, more than ever, financial institutions are partnering with government to address a range of serious law enforcement and national security issues with illicit financing implications, from fentanyl trafficking to Russia’s illegal invasion of Ukraine – the highest priority threats.

“Today’s publication is a significant milestone in FinCEN’s efforts to implement the AML Act,” said FinCEN Director Andrea Gacki. “The proposed rule is a critical part of our efforts to ensure that the AML/CFT regime is working to protect our financial system from longstanding threats like corruption, fraud, and international terrorism, as well as rapidly evolving and acute threats, such as domestic terrorism, and ransomware and other cybercrime.”

What would the proposed rule do?

The proposed rule would:

• Amend the existing program rules to explicitly require financial institutions to establish, implement, and maintain effective, risk-based, and reasonably designed AML/CFT programs with certain minimum components, including a mandatory risk assessment process;
• Require financial institutions to review government-wide AML/CFT priorities and incorporate them, as appropriate, into risk-based programs, as well as provide for certain technical changes to program requirements; and
• Promote clarity and consistency across FinCEN’s program rules for different types of financial institutions.

De-risking strategy

The proposal also outlines some broader considerations for an effective and risk-based AML/CFT framework as envisioned by the AML Act.

For example, through its emphasis on risk-based AML/CFT programs, the proposed rule seeks to avoid one-size-fits-all approaches to customer risk that can lead to financial institutions declining to provide financial services to entire categories of customers.

The proposal represents one manifestation of Treasury’s De-risking Strategy, which in April last year recommended proposing regulations to require financial institutions to have reasonably designed and risk-based AML/CFT programs supervised on a risk basis and taking into consideration the effects of financial inclusion – modernizing their AML/CFT programs, while still managing illicit finance risks.

FinCEN prepared the proposal in consultation with the US Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the National Credit Union Administration so each would propose amendments to their respective BSA compliance program rules for the institutions they supervise.

Written comments on FinCEN’s proposed rule must be received on or before 60 days following its publication in the Federal Register.