Reported by Braddock Stevenson

The revised rules’ renewed emphasis on innovation, and their requirement that financial institutions ensure their operational program requirements are US-based, also carry potential impact. To drive innovation and effective programmatic changes and reduce regulatory hindsight, banks and other financial institutions should consider several steps.

Develop data-driven measurements for risk over qualitative ones. Institutions should focus more on data and quantifiable inputs to support the analysis in their risk assessments.

Quantifiable assessments will be less subject to challenge by regulators and examiners. As part of their data-driven models, institutions also must include an assessment of their FinCEN filings. They should consider developing methods to store suspicious activity and currency transaction reports in more readily analyzable formats.

Ensure risk assessments focus on illicit finance outcomes. The proposed rules explicitly require institutions assess risks that national AML/CFT priorities present for illicit finance. In addition to determining risk of non-compliance, financial institutions should understand the methods illicit actors use to launder related proceeds and susceptibility to such methods. 

For example, understanding that fraud rings’ reliance on gift and prepaid cards may factor in determining a financial institution’s susceptibility to fraud via its own products.

Include assessments of financial technology partnerships. FinCEN’s preamble states that financial institutions must consider the risks of distribution channels, including partners and intermediaries to customers. Fintech companies should notice that agencies are focusing on banking partnerships.

While more effective AML/CFT programs are the focus of the rules, they also require that program establishment, maintenance, and enforcement must be performed in the US. This likely will result in increased costs and risks of supervisory actions. 

Global financial institutions and foreign-located money services businesses, such as crypto exchanges, often rely on foreign-located resources to perform their AML/CFT functions.

If finalized, the proposed rule could create inefficiencies from redirecting AML resources to the US, although FinCEN didn’t quantify such potential impact. 

Read full report: https://news.bloomberglaw.com/us-law-week/anti-money-laundering-rule-revisions-empower-banks-at-a-cost