Following U.S. Treasury Deputy Under Secretary John Hurley’s recent remarks[1] in industry forums, financial institutions have been anticipating a modernization to the Bank Secrecy Act (BSA) / Anti-Money Laundering (AML) supervisory regime. The first glimpse into the current administration’s vision of the future BSA / AML regulatory environment was evident in Thursday’s release of a set of FAQs regarding Suspicious Activity Reporting (SAR) Requirements released by the Financial Crimes Enforcement Network (FinCEN)[2]. While not fundamentally changing requirements or expectations amongst covered institutions, the FAQs signal a desire to reduce box-checking exercises traditionally associated with BSA / AML compliance, and transition supervisory regimes to a more outcomes-based approach.
Overall, FinCEN’s FAQs serve primarily as reiterations or clarifications, and do not necessarily alter requirements. However, financial institutions likely should consider the degree to which their existing suspicious activity monitoring processes may be impacted:
| FinCEN FAQ | What should banks do? |
| #1: SAR Filings for Potential Structuring-related activity | Although there has not historically been a requirement to file SARs solely based on the existence of transactions under the $10k Currency Transaction Reporting (CTR) threshold, covered institutions should likely consider whether existing processes to file structuring SARs are overly-defensive, and whether analysts / investigators are appropriately trained to determine whether observed transactions are truly indicative of attempts to evade reporting thresholds, rather than legitimate transactions that happen to be near $10k. |
| #2: Continuing Activity Reviews | While not strictly considered a required element of a suspicious activity monitoring program, most banks perform continuing activity reviews for customers with previously filed SARs. Covered institutions should consider implementing a risk-based approach to this monitoring, rather than automatically performing continuing activity reviews for all SARs. For example, customers should be reevaluated if monitoring mechanisms generate subsequent alerts following the SAR filing. Additionally, banks may consider risk-rating customers with prior SARs as “High” to periodically monitor whether suspicious activity has continued.
It may also be beneficial to develop internal procedures to determine whether a continuing activity review is required. As an example, where a SAR presents additional risk, due to the nature of the observed typologies, parties involved, amounts, etc., a continuing activity review should likely be performed regardless of other mitigating strategies. |
| #3: Continuing Activity Reviews – Timeline | Where banks do choose to perform continuing activity reviews (ideally on a risk-basis and following defined procedures), the FAQ response reiterates the timeline for filing continuing activity SARs. This does not represent a change from previous guidance: continuing activity SARs, where applicable, are to be filed within 120 days of the original SAR. |
| #4: No SAR Documentation | Although this clarification from FinCEN appears to relax requirements for documenting decisions not to file SARs, covered institutions should be cautious in rolling back their existing procedures. Risk-based decisions should be justifiable to external parties and evidenced with appropriate documentation.
However, this clarification should prompt banks to consider whether to tier processes based on the risk presented by the scenario. For example, if a bank investigates activity that can be easily explained, investigators should not necessarily be required to complete a series of burdensome “box-checking” tasks that may not be warranted given the risk presented. |
The most consequential aspect of FinCEN’s publication of these FAQs is likely what it means for future rulemaking. Banks have long griped about the compliance-based nature of the BSA / AML regulatory environment, receiving minimal feedback regarding the effectiveness of SARs in terms of their ability to provide timely, comprehensive, and actionable information to law enforcement. Recent comments by Under Secretary Hurley, in conjunction with Thursday’s FAQs, may indicate a changing of the guard in terms of expectations of BSA / AML programs and how they are evaluated.
[1] Remarks by Under Secretary for Terrorism and Financial Intelligence John K. Hurley at the Association of Certified Anti-Money Laundering Specialists Assembly Conference | U.S. Department of the Treasury
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