The U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) pulled back the AML compliance exemption for certain financial institutions in late 2020. Under the November 16, 2020 rule, titled Customer Identification Programs Anti-Money Laundering Programs for Banks Lacking a Federal Regulator, previously exempt financial institutions (FIs) must now establish and implement anti-money laundering (AML) programs which extend to customer identification program (CIP) and beneficial ownership requirements. The new rule specifically covers banks and financial institutions lacking a federal functional regulator.

FinCEN explained that the purpose of revoking the exemption is “ensuring that all banks, regardless of whether they are subject to federal regulation and oversight” have effective programs in place to prevent money laundering. FinCEN was concerned that U.S. financial systems could be exploited by bad actors targeting institutions with less stringent AML compliance programs. Consistent Bank Secrecy Act (BSA) coverage across the banking industry closes this gap and protects against systemic vulnerability.

Previously exempt financial institutions fall into these categories:

  1. State-chartered, non-depository trust companies
  2. Non-Federal Deposit Insurance Corporation (FDIC) insured state banks and savings associations
  3. Non-NCUSIF (National Credit Union Share Insurance Fund) insured credit unions
  4. Private banks
  5. International banking entities that are not FDIC insured but are authorized by Puerto Rico and the U.S. Virgin Islands to provide banking and other services to non-resident aliens

The new rule mandates, among other things, minimum standards for anti-money laundering programs, identity verification obligations for all customers, along with and the identification of beneficial owners of new legal entity customers.

The delay in establishing requirements for the five categories of previously exempt financial institutions was important. The time enabled FinCEN to “study the money laundering risks posed by such financial institutions” and get a better understanding of what requirements might be appropriate. The delay also gave these financial institutions more time to ease into compliance obligations. FinCEN anticipates that banks lacking a Federal functional regulator will be able to leverage existing policies, procedures, and internal controls prescribed by other statutory and regulatory requirements to fulfill the obligations set out in the final rule. The new rule mandates, among other things, minimum standards for anti-money laundering programs, identity verification obligations for all customers, along with the identification of beneficial owners of new legal entity customers.

New FinCEN Requirements:

  • Establish and implement AML controls
  • Comply with CIP requirements
  • Comply with beneficial ownership information requirements

Time is running out for formerly exempt financial institutions to have an effective AML compliance program in place. The final deadline for compliance is March 15, 2021. Faced with less time and fewer resources due to the disruption of 2020, meeting this deadline will be a challenge. To address the new FinCEN rules, organizations will need compliance tools that offer the following:

  • A strong foundation for CIP and KYC compliance
  • Insight into beneficial ownership of entities and enhanced due diligence and suspicious activity investigations
  • Sanctions screening and KYC solutions that can be easily implemented by financial institutions of any size
  • A comprehensive database of high-risk individuals and entities, covering sanctioned parties, associated entities and owners, enforcements, PEPs, state-owned enterprises, adverse media and Marijuana Related Businesses (MRBs)

One size does not fit all when it comes to the right tools to make compliance programs work. By providing the proper information and technology to address FinCEN and other regulatory compliance requirements, LexisNexis Risk Solutions can help financial institutions address compliance gaps. With deep expertise and a robust portfolio of compliance solutions we have the resources and knowledge to help assess the risk of current clients, verify customer information, uncover relationships and ownership, or support the complete client lifecycle. Visit risk.lexisnexis.com/aml to learn more.

Sources:

FinCEN Issues Final Rule to Require Customer Identification Program, Anti-Money Laundering Program, and Beneficial Ownership Requirements for Banks Lacking a Federal Functional Regulator
Financial Crimes Enforcement Network; Customer Identification Programs, Anti-Money Laundering Programs, and Beneficial Ownership Requirements for Banks Lacking a Federal Functional Regulator
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