FinCEN Proposes New Rule to Strengthen AML/CFT Programs

The U.S. Department of the Treasury’s  (the “Treasury”) Financial Crimes Enforcement Network (“FinCEN”) recently proposed a pivotal new rule to bolster the effectiveness of Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) programs within financial institutions. Building upon the established foundation of existing AML/CFT regulations, the proposed rule seeks to amend existing laws to ensure that such programs are effective, risk-based, and reasonably designed.

Under the current framework, financial institutions are only required to have AML/CFT programs in place. The proposed rule emphasizes that programs must not only exist but also be effective, risk-based, and reasonably designed. This overhaul is in direct response to the Anti-Money Laundering Act of 2020 (AML Act) and plays a crucial role in the Treasury’s strategy to foster an AML/CFT regime that prioritizes efficiency based on risk assessment. When preparing the proposed rule, FinCEN also consulted with several major regulatory agencies, including the Federal Reserve System, the Office of the Comptroller of the Currency, the FDIC, and the NCUA, to ensure the rule’s recommendations apply uniformly across financial institutions.

Key Features of the Proposed Rule

Implementation of Risk-Based Programs: The proposal intends to implement a mandatory risk assessment procedure for financial institutions to ensure that their AML/CFT programs are designed based on the specific risks they face. This approach seeks to move away from the current “one-size-fits-all” approach, enabling institutions to focus their resources on the most significant threats.

Alignment with National AML/CFT Priorities: Under the proposed rule, financial institutions will be required to align their AML/CFT programs with national AML/CFT priorities, ensuring a cohesive and strategically directed effort in combating money laundering and terrorist financing.

Clarity and Consistency Improvements: The proposed amendments aim to harmonize the AML/CFT program rules across different financial institutions, thus reducing inconsistencies and promoting a better understanding of compliance requirements.

Encouragement of Innovation in Compliance: The proposed rule advocates for financial institutions to explore modernization and innovation in their AML/CFT programs where feasible, as long as such advancements aid in managing illicit finance risks effectively.

Deputy Secretary of the Treasury Wally Adeyemo and FinCEN Director Andrea Gacki highlighted the importance of this collaboration between the government and financial institutions in addressing serious law enforcement and national security threats. The rule also aligns with Treasury’s De-risking Strategy, which recommends that regulations should encourage the development of AML/CFT programs designed based on risk, with considerations towards financial inclusion’s impact.

FinCEN believes the proposed rule is a crucial step toward protecting the integrity of the U.S. financial system, reflecting the evolving need for more nuanced and intelligent approaches to combating financial crimes. For further details and to provide comments, interested parties are encouraged to review the proposed rule at the Federal Register and partake in the discussion to shape the future of AML/CFT regulations in the financial sector: https://www.federalregister.gov/documents/2024/07/03/2024-14414/anti-money-laundering-and-countering-the-financing-of-terrorism-programs.