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Regulators Offer More Guidance as AML Rules Near Effective Date

Away from the headlines, federal and state regulators continue to prepare financial institutions for their new anti-money laundering compliance obligations. In the past few weeks, the Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) and FINRA provided additional guidance to covered institutions on how to comply with rules that are set to go into effect next month. In New York, the certification provisions of the Department of Financial Services (“NYDFS”) BSA/AML rules went into effect. Here are the highlights:


In a practice alert published last November, Bates Group expert Susan Berger reviewed AML requirements that “covered financial institutions” must satisfy in order to be in compliance with FinCEN’s Customer Due Diligence rule (“CDD”), which becomes effective on May 11, 2018. Ms. Berger examined the new beneficial owner identification requirements, and the new compliance “pillar” requiring the use of CDD information to develop a risk-based to use for AML monitoring and surveillance. On April 3, 2018, FinCEN issued additional guidance in the form of Frequently Asked Questions (“FAQs”) to help covered financial institutions better understand the scope of the CDD rule. (FinCEN had previously provided FAQs on the CDD Rule in 2016.)

Among the many concerns tackled in more than 30 questions, FinCEN addressed issues concerning the collection, verification and retention of beneficial ownership information as well as processes for monitoring and updating customer information. FinCEN discussed certification requirements and provided interpretations on specific questions related to the treatment of varying types of legal entities and transactions under the rule. The guidance reaffirmed the importance that FinCEN places on firms understanding the nature and purpose of the customer relationship to inform their risk-based policies and procedures. The guidelines were explicit, however, that: “a covered financial institution with notice of, or a reasonable suspicion that, a customer is evading or attempting to evade beneficial ownership or other customer due diligence requirements should consider whether it should not open an account, close an account, or file a suspicious activity report, regardless of any [of these] interpretations.” That caveat highlights the need for firms to tailor their programs to their particular business’ products and services using the FinCEN interpretations as a guide.

At an AML conference held on April 9-11, federal regulatory authorities reportedly assured firms that “they won’t immediately crack down on financial institutions” and that they “will get a light enforcement touch in the early days after the May 11 effective date.” Such reassurance stands in contrast to the prominence that FINRA has assigned to AML as an exam priority (see Bates Group report here).


In anticipation of the upcoming effective date of the CDD rule, FINRA updated the template it provides to small firms to assist them with fulfilling their AML/BSA compliance responsibilities under FINRA Rule 3310. FINRA explained that the “template provides text examples, instructions, relevant rules and websites and other resources that are useful for developing an AML plan for a small firm.” The updated version includes new rule citations, new resources and hyperlinks in relation to the FinCEN final rule. Like the FinCEN guidance, FINRA expects the template to serve as a helpful guide but not to be considered as a guarantee of compliance.


On April 15, 2018, the first certification was due under the New York DFS Rule 504 anti-money laundering regulations. The attestation requires New York State regulated institutions to adopt a board resolution or submit a senior officer’s compliance findings as to the sufficiency of the firm’s BSA/AML Transaction Monitoring and Filtering Program. The regulations also include a template for a possible submission to the DFS Superintendent.


Without great fanfare, the regulatory wheels keep on turning. By now, most firms should be prepared for the new responsibilities and additional costs. But one look at the complexity of FinCEN’s most recent set of FAQs should be enough to convince even the most prepared compliance officer that actual compliance after May 11 may be complicated. Bates will keep you apprised as the new regulations go into effect.

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