Read the FDIC Proposed Rule Here

Read the OCC Proposed Rule Here

  • Sources: fdic.gov and occ.gov

Treliant Takeaway:

Treliant helps firms to prepare for regulatory change. Treliant’s team includes experienced industry leaders and subject matter experts such as former compliance officers, audit professionals, regulatory and supervisory examiners, as well as data and technology professionals. We understand how to make Bank Secrecy Act (BSA)/Anti-money laundering (AML) compliance programs work and can assist with program updates so that firms can stay current with regulatory expectations.

Rule Highlights:

In December 2020, a pair of notices of proposed rulemaking (NPRM: RIN 1557-AE77 and RIN 3064-AF56) and request for public comment were published by the Office of the Comptroller of the Currency (OCC) and Federal Deposit Insurance Corporation (FDIC) that would allow these agencies to provide their supervised institutions exemptions from specified Suspicious Activity Report (SAR) filing requirements.

At the root of the proposed rulemaking is the intent to allow for new and innovative development of approaches for detecting and reporting money laundering and terrorist financing activity.  In the fifty years following the passage of the Bank Secrecy Act, there has been a continuous evolution of strategy, tactic, and operation in the fight against financial crime. Sporadic events, such as the tragedy of the terrorist attacks on September 11, 2001, which spurred the passage of the USA PATRIOT Act, acted to accelerate this evolution.  What was once a small and limited and regulatory function in financial institutions has, for many, become a significant (and expensive) undertaking, when considering the people and technology applied to the risk management.

With maturity, comes reflection, and the recognition that new techniques will be needed to stem the flow of illicit funds.  This recognition was emphasized in the joint statement published in 2018 by the Board of Governors of the Federal Reserve System, the National Credit Union Administration, the Office of the Comptroller of the Currency, and FinCEN encouraging banks to take innovative approaches to meet their BSA/Anti-Money Laundering compliance obligations.  In this spirit, the NPRMs recognize that innovation and development may result in conditions that may result in regulatory concerns or violations.  Examples cited include expanded investigations and SAR timing issues, SAR disclosures and sharing, continued SAR filings for ongoing activity, outsourcing of SAR processes, the role of agents of national banks and federal savings associations, the use of shared utilities and shared data, and the use and sharing of de-identified data.

The impact of the rulemaking is to provide parity between the OCC’s and FDIC’s SAR regulations and FinCEN’s SAR regulations.  FinCEN’s regulations already provide for the ability to grant exemptions.  FinCEN’s regulation provides that “[t]he Secretary [of Treasury], in his sole discretion, may by written order or authorization make exceptions to or grant exemptions from the requirements of [the BSA]. Such exceptions or exemptions may be conditional or unconditional, may apply to particular persons or to classes of persons, and may apply to transactions or classes of transactions.”

If modified, Bank’s requesting an exemption from SAR requirements would need to submit their request in writing to their primary supervisor for consideration of whether the exemption is consistent with safe and sound banking, and any other appropriate factors, such as any outstanding supervisory concerns related to BSA/AML, including informal and formal enforcement actions.  The proposed rulemaking  points out some nuances in the written request, such as requests related to SAR filings required by 12 CFR 21.11(c)(4), or related to SAR timing requirements in 12 CFR 21.11(d), or related to SAR confidentiality in 12 CFR 21.11(k), a financial institution may need to seek an exemption from both their primary supervisor and FinCEN.  The NPRM also highlights that the agencies could also revoke previously granted exemptions if circumstances change, and cited consistency with the BSA and safety and soundness as an example.

Comments to the NPRMs are encouraged, and the industry enthusiastically awaits the continued discussion as we attempt to embrace innovation for common purpose.

Author

Frank Meister

Frank Meister is a Director with Treliant, with over 20 years in banking operations and compliance. For the past 13 years, he has worked on the Bank Secrecy Act/Anti-Money Laundering (BSA/AML) and Sanctions Programs of large and mid-sized banks, building strong programs to withstand robust regulatory examinations. Frank’s broad and…