Fed proposes risk-based AML requirements

The Federal Reserve proposed amending its requirements for banks to maintain anti-money laundering programs to align with changes to AML program requirements separately proposed by other agencies.

Details: The Fed said the proposal would:

• Require banks to focus their anti-money laundering resources based on risk, with more attention given to higher-risk customers and activities.

• Require banks to incorporate the Financial Crimes Enforcement Network's AML priorities into their risk-assessment processes.

• Stipulate that once a bank has established an anti-money laundering program, the Fed would focus supervision and enforcement activities on significant failures to implement the program.

Community Bank Focus: The agency’s proposal notes that many community banks operate with more limited business activities, traditional lending and deposit services, a narrower geographic footprint, and customer bases concentrated within defined communities. “For such banks, risk assessment processes may appropriately be more streamlined or qualitative in nature,” it says.

Key Difference: The Fed’s proposal deviates from a proposed rule the FDIC, OCC, and National Credit Union Administration issued earlier this year by not giving FinCEN a role in the examination process.

ICBA Advocacy: Responding to AML reforms proposed by FinCEN and by the prudential regulators, ICBA last month said the proposals must be workable, risk-based, and appropriately tailored for community banks.

Other Proposals: The FinCEN said its proposed rule would amend AML/CFT rules to reduce compliance burden on the premise that financial institutions are best positioned to identify and evaluate their illicit finance risks. The joint proposal from the FDIC, OCC, and NCUA aligns with the changes proposed by FinCEN.

Background: The Anti-Money Laundering Act of 2020 directed FinCEN and the agencies to modernize and strengthen the AML/CFT regulatory framework to encourage more effective outcomes for financial institutions, regulators, law enforcement, and national security agencies.

Input: Comments on the Fed proposal are due 60 days after publication in the Federal Register.