ICBA to regulators: AML/CFT rules must be tailored

ICBA told federal regulators that proposed rules to reform anti-money laundering and countering the financing of terrorism program requirements must be workable, risk-based, and appropriately tailored for community banks.

Details: Among the ICBA recommendations in letters responding to AML/CFT proposals from the Financial Crimes Enforcement Network and the FDIC and OCC, ICBA urged the agencies to:

• Preserve the proposals’ risk-based approach and allow institutions to shift more resources to higher-risk areas and away from lower-risk activities.

• Clarify that an effective program need not be perfect and that minor or technical deficiencies do not constitute program failure.

• Confirm that community banks may use streamlined, relationship-based risk assessment processes suited to their size, complexity, and risk profile.

• Confirm that AML/CFT officers may hold other duties if they have the authority, expertise, and capacity to administer the program effectively.

• Strengthen protections to ensure examiners do not second‑guess reasonable bank judgments regarding resource allocation, risk prioritization, and documentation.

• Provide community banks at least 24 months to implement the final rule, rather than the proposed 12-month effective date.

• Use this rulemaking to reduce burden by coordinating reforms to suspicious activity report and currency transaction report thresholds, beneficial ownership requirements, and BSA feedback loops.

Proposals: FinCEN said its proposed rule includes amendments to 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.