Federal Regulators Propose Enhanced AML/CFT Risk Assessments for Financial Institutions

Four federal banking regulators, alongside the Treasury Department’s Financial Crimes Enforcement Network (FinCEN), have issued a notice of proposed rulemaking requiring financial institutions to conduct more thorough risk assessments on their anti-money laundering/countering the financing of terrorism (AML/CFT) programs.

On Friday, the Federal Reserve Board of Governors (the Fed), the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), and the Treasury’s Office of the Comptroller of the Currency (OCC) released a joint statement with FinCEN requesting public comment on the proposed rule. This rule, initially proposed in June, aims to ensure that AML/CFT programs are "effective, risk-based, and reasonably designed," allowing financial institutions to allocate their resources in alignment with their specific risk profiles, according to FinCEN’s press release.

The new requirements are part of the AML Act of 2020, which became law in 2021, marking the first comprehensive update to the Bank Secrecy Act (BSA) in decades, as highlighted by FinCEN. Financial institutions regulated by any of the five federal regulators would need to establish a risk assessment process to develop risk-based internal policies, procedures, and controls. This process is intended to manage and mitigate risks, provide highly useful information to government authorities, and further the purposes of the BSA, as stated in a FinCEN fact sheet.

The federal regulators emphasized that these risk assessments should be tailored to each institution's specific lines of business, discouraging the practice of de-risking, which involves indiscriminately declining to provide banking services to entire categories of customers. Financial institutions will also be encouraged to update and improve their AML/CFT programs through "responsible innovation" in the use of emerging technologies.

Public comments on the rules proposed by the Fed, FDIC, NCUA, and OCC will be accepted for 60 days following their publication in the Federal Register. Comments on FinCEN’s rule will be accepted for 60 days after July 3, the date FinCEN published its rule in the Federal Register.

By fLEXI tEAM