Banking Associations Say FinCEN Should Be Recognized as Final Word on AML

The Bank Policy Institute and The Clearing House Association urged that a Federal Reserve proposal regarding AML recognize the importance of FinCEN's role and warned that the failure to recognize its importance could lead to inconsistent supervisory expectations.

The Fed's proposed AML program rule (see prior coverage) would direct banks to put more attention and resources toward higher-risk customers and activities, and would raise the threshold for significant supervisory or enforcement actions based solely on implementation deficiencies.

In a comment letter responding to the Fed's proposal, the associations said the Fed's approach largely aligns with parallel proposals from FinCEN (see prior coverage) and other federal banking agencies. The associations backed both changes, saying the risk-based mandate should let banks calibrate resources consistent with a bank's risk profile.

However, the associations argued the Fed's proposal deviates from the other agencies' proposals in two key ways that could misalign Fed enforcement with FinCEN's approach. First, the associations said the proposal omits a consultation framework that would allow FinCEN to review an enforcement action or significant supervisory action before the Fed initiates it. Second, they said the proposal does not authorize Fed-supervised institutions to share confidential supervisory information with FinCEN relating to an existing or potential AML/CFT ("countering the financing of terrorism") enforcement action or significant AML/CFT supervisory action.

The associations said these two provisions are important because they reinforce FinCEN's coordinating role across supervision. They warned that the omissions could leave the Fed's Bank Secrecy Act ("BSA") enforcement activities misaligned with FinCEN's, an outcome they called bad policy that may limit the impact of needed BSA reforms. They also argued that banking agencies should not create or interpret BSA standards independent of FinCEN or use general enforcement powers to bypass FinCEN's guidance on when a bank may face a significant supervisory or enforcement action.