Category Archives:Bank Secrecy Act

FDIC Issues Statement on Providing Bank Services

On January 28, 2015, the FDIC issued a Statement on Providing Banking Services to encourage institutions to take a risk-based approach in assessing individual customer relationships rather than declining to provide banking services to entire categories of customers. The FDIC noted that individual customers within broader customer categories present varying degrees of risk, and some institutions may be hesitant to provide certain types of banking services due to concerns that they will be unable to comply with the associated requirements of the Bank Secrecy Act (BSA). The FDIC released the statement to announce that financial institutions that can properly manage customer relationships and effectively mitigate risks are neither prohibited nor discouraged from providing services to any category of customer accounts or individual customer operating in compliance with applicable state and federal law. Further, the FDIC believes when an institution follows existing guidance and establishes and maintains an appropriate risk-based program, the institution will be well-positioned to appropriately manage customer accounts, while generally detecting and deterring illicit financial transactions.

Risks Facing National Banks and Federal Savings Associations

National banks and federal savings associations continue to face a number of risks as they seek to improve profits in the face of slow economic growth and a prolonged low interest rate environment. Banks are layering risk back into the system in ways that are difficult to quantify at this point in the cycle. That is why risk management must remain a top priority according to the Office of the Comptroller of the Currency’s semiannual assessment of risk.

The OCC’s Semiannual Risk Perspective for Fall 2013 details risks facing the banking industry:

  • Strategic risk remains elevated as many banks re-evaluate their business models and risk appetites to generate returns against the backdrop of slow economic growth and low interest rates. OCC examiners will focus on banks’ strategic business and new product planning to ensure banks maintain appropriate risk management processes.
  • Cyber threats are growing in sophistication and frequency, and require heightened awareness and appropriate resources to identify and mitigate the associated risks.
  • Competition for limited lending opportunities is intensifying, resulting in increased risk tolerance and loosening underwriting standards, particularly in new or unfamiliar loan products. The recent rise in long-term interest rates underscores the vulnerability for banks that reach for yield, as they could face significant earnings pressure, possibly to the point of capital erosion, if interest rates increase further.
  • Bank Secrecy Act and Anti-Money Laundering risks continue to rise as money laundering methods evolve, electronic bank fraud increases in volume and sophistication, and banks fail to incorporate appropriate controls into new products and services.
  • Price volatility has been very low for a long time. Light securities dealer inventories suggest limited risk appetite for market making, raising the possibility of more significant market volatility and price risk as quantitative easing policies change.

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Agencies Issue Rule Amending Definitions in Bank Secrecy Act

Two agencies (FinCEN and  FRB) issued a final rule largely adopting their 2012 proposal to amend the definitions of “funds transfer” and “transmittal of funds” under regulations implementing the Bank Secrecy Act. In light of the amendments to the Electronic Fund Transfer Act and its implementing regulation, Regulation E, FinCEN proposed to amend the definitions of “funds transfer” and “transmittal of funds.” Without such amendments, such transactions would no longer be subject to the Recordkeeping and Travel Rules’ requirements. The final rule responds to comments to: (1) clearly state that the amended rule does not change the current scope of the obligations of financial institutions under the Recordkeeping or Travel Rules, and (2) delay finalizing the amended rule until the CFPB’s remittance transfer rule was finalized and became effective. On January 3, 2014 the final rule becomes effective.

OCC Discusses Bank Secrecy Act

Comptroller of the Currency Thomas J. Curry told a conference on money laundering enforcement that the Bank Secrecy Act is a key element in the fight against illegal drugs and terrorism, and said meeting the challenges of the future will require increased diligence on the part of the industry and government alike.

The development of new payment systems, including digital currencies, creates special challenges, he said in a speech to a conference sponsored jointly by the American Bankers Association and the American Bar Association.

However, “the same technologies that can be exploited for illicit purposes can also be employed to combat money laundering, terrorist financing, and other forms of illicit activity,” he added.  “Perhaps the time has come to explore these sources of technology as a means of providing more accurate, timely, and better information to law enforcement and regulators, and to reduce the significant costs and burdens imposed on banks and other financial institutions.”

Remarks Before the ABA Conference