FinCEN Proposes Rule to Enhance AML Standards for U.S. Financial Institutions

The Financial Crimes Enforcement Network (FinCEN), the financial crime unit of the U.S. Treasury, has put forward a new rule designed to bolster anti-money laundering (AML) standards within American financial institutions.

The proposed regulation mandates that companies perform more comprehensive risk assessments and explicitly forbids financial institutions from outsourcing oversight of AML/CFT programs to overseas entities. "The proposed rule reflects the requirement to establish, maintain, and enforce a financial institution’s AML/CFT program shall remain the responsibility of, and be performed by, persons in the United States," FinCEN stated.

The agency further specified that these individuals must be “accessible to, and subject to oversight and supervision by, the Secretary of the Treasury and the appropriate Federal functional regulator.”

In a statement, FinCEN emphasized that the proposed rule would “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.”

A FinCEN fact sheet detailed that the rule would necessitate a financial institution’s AML/CFT program to incorporate a risk assessment process to better identify and understand its exposure to money laundering, terrorist financing, and other illicit finance activities. Additionally, AML and CFT programs would need approval from the financial institution’s board of directors or an equivalent body, remaining under its direct oversight.

Under the proposed rule, FinCEN expects financial institutions to use the outcomes of their risk assessment processes to develop “risk-based internal policies, procedures, and controls in order to manage and mitigate risks.” Furthermore, institutions would be required to provide “highly useful” information to government authorities, supporting the objectives of the U.S. Bank Secrecy Act, which targets financial crime in the U.S.

“We at Treasury and FinCEN believe that this is a transformative moment in the history of AML/CFT policy for the United States,” a Treasury official remarked on Friday.

The official acknowledged that while some aspects of the rule are already in place for certain financial institutions, this proposal would for the first time codify the risk-based nature of AML/CFT programs. It would also direct financial institutions to allocate their resources to high-priority areas that support law enforcement needs.

The financial institutions affected by the proposed rule include:

- Banks

- Casinos and card clubs

- Money services businesses (MSBs)

- Brokers or dealers in securities, or broker-dealers

- Mutual funds

- Insurance companies

- Futures commission merchants and introducing brokers in commodities

- Dealers in precious metals, precious stones, or jewels

- Operators of credit card systems

- Loan or finance companies

- Housing government-sponsored enterprises

Currently at the proposal stage, the rule invites interested parties to submit their feedback within 60 days of its publication.

By fLEXI tEAM