FinCEN Updates AML Rules

The Treasury Department’s Financial Crimes Enforcement Network (FinCEN) 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, Friday's  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) enacted by the Anti-Money Laundering (AML) Act of 2020 and are a key component of Treasury’s objective of a more effective and risk-based AML/CFT regulatory and supervisory regime.

AML/CFT Program Requirements

The Bank Secrecy Act (BSA)1 requires financial institutions to establish AML/CFT programs that must include, at minimum, the following components:

1. the development of internal policies, procedures, and controls;
2.  the designation of a compliance officer;
3.  an ongoing employee training program;
   and
4.  an independent audit function to test programs.

By "risk-based," FinCEN means "ensuring that more attention and resources of  financial institutions should be directed toward higher-risk customers and activities, consistent with the risk profile of a financial institution, rather than toward lower-risk customers and activities."

FinCEN intends for the proposed rule to enable financial institutions to use the risk assessment
process to prioritize risks and focus their attention and resources in a manner consistent with the risk
profile of each individual financial institution. Financial institutions would need to consider the total amount and nature of the resources available to identify, manage, and mitigate illicit finance activity risks.

The Risk Assessment Process

The proposed rule would require a financial institution’s AML/CFT program to include a risk
assessment process to better enable it to identify and understand its exposure to money laundering,
terrorist financing, and other illicit finance activity risks. The proposed rule standardizes the requirement for a risk assessment process across the different types of financial institutions subject to program rules.

Broader Considerations

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.

News Release: https://www.fincen.gov/news/news-releases/fincen-issues-proposed-rule-strengthen-and-modernize-financial-institutions

Fact Sheet: https://www.fincen.gov/sites/default/files/shared/Program-NPRM-FactSheet-508.pdf

Federal Register Notice: https://www.federalregister.gov/public-inspection/2024-14414/anti-money-laundering-and-countering-the-financing-of-terrorism-programs