FinCEN Issues Final Rule to Anti-Money Laundering Program

Table of Contents

  1. FinCEN Regulations & Requirements
  2. FinCEN Beneficial Ownership Final Rule 
  3. What are the Requirements in the FinCEN Final Rule? 
  4. FinCEN Bank Secrecy Act: What It Means
  5. FinCEN Issues Final Rule to AML Program 

FinCEN Regulations & Requirements

FinCEN requirements: FinCEN regulations function under the Bank Secrecy Act (BSA) of 1970, amended by Title III of the USA PATRIOT Act of 2001. The BSA is the US’s first initiation and most comprehensive Federal AML/CFT statute. Under the BSA, the Secretary of the Treasury is authorized to issue regulations that require financial institutions such as banks and others to take a number of precautions against money laundering. This would include the establishment of AML programs within the institutions, filing reports that are suspected to trigger a high degree in criminal, tax, and regulatory investigations and proceedings, and certain intelligence and counter-terrorism matters. For FinCEN regulations, the Director is authorized by the Secretary of the Treasury to implement, administer, and enforce compliance with the BSA and associated regulations.

Data reported under FinCEN regulations is to be collected, analyzed, and disseminated along with and other related data, in support of government and financial industry partners at the Federal, State, local, and international levels as authorized by the Congress. FinCEN does the following in order to fulfill FinCEN regulations toward the detection and deterrence of financial crime:

  • It issues and interprets regulations that are authorized under the Act
  • It applies compliance with those regulations
  • It supports, coordinates, and analyzes data regarding compliance examination functions delegated to other Federal regulators
  • It manages the collection, processing, storage, dissemination, and protection of data filed under FinCEN’s reporting requirements
  • It maintains a government-wide access service to FinCEN’s data and networks users with overlapping interests
  • It supports law enforcement investigations and prosecutions
  • It synthesizes data to recommend internal and external allocation of resources to areas of greatest financial crime risk
  • It shares information and coordinates with foreign financial intelligence unit (FIU) counterparts on AML/CFT efforts
  • It conducts analysis to support policymakers – law enforcement, regulatory, and intelligence agencies, FIUs, and the financial industry

FinCEN Beneficial Ownership Final Rule 

FinCEN beneficial ownership final rule: FinCEN issued its long-awaited FinCEN beneficial ownership final rule on May 5th, 2016. It was with respect to customer due diligence (CDD) requirements and required insured financial institutions to adopt due diligence procedures to identify and verify a legal entity customer’s beneficial owner at the time their new account is made. The FinCEN beneficial ownership final rule became applicable to all covered financial institutions by May 11, 2018.

Issued by the Obama administration as part of reforms intended to counter money laundering, corruption, and tax evasion, the FinCEN beneficial ownership final rule was initially proposed by FinCEN in 2014 after advance notice of proposed rulemaking was issued in 2012. The duration that was for a long period for the rulemaking process reflects the significant legal, compliance, and operational challenges related to FinCEN requirements reporting along with the two-year implementation period.

What are the Requirements in the FinCEN Final Rule? 

FinCEN requirements: The final rule applies to covered financial institutions:

  • Depository institutions which include – insured and commercial banks, savings associations, credit unions insured federally, trust companies regulated federally, US agencies & branches of foreign bank
  • Securities broker-dealers
  • Mutual funds
  • Futures commission merchants and introducing brokers (IB) in commodities

Under FinCEN requirements, financial institutions are required to establish and maintain written procedures for the identification and verification of beneficial owners of legal entity customers.

FinCEN Bank Secrecy Act: What It Means

FinCEN Bank Secrecy Act: The Currency and Foreign Transactions Reporting Act of 1970, which legislative framework is commonly referred to as the FinCEN Bank Secrecy Act (BSA), requires that financial institutions assist the US government agencies to help detect and prevent money laundering. Records of cash purchases of negotiable instruments have to be maintained by the FIs. They are also required to file reports of cash transactions exceeding $10,000 and report suspicious activity that might signify money laundering or other criminal activities. The FinCEN Bank Secrecy Act was passed by Congress in 1970 and is sometimes referred to as an AML law or jointly as BSA/AML. Several AML acts since then, including the USA PATRIOT Act have been enacted and issued to the present day to amend and strengthen the FinCEN Bank Secrecy Act.

FinCEN Issues Final Rule to AML Program 

FinCEN final rule: FinCEN final rule issued and established anti-money laundering (AML) program requirements on September 15, 2020. For banks ‘lacking a federal functional regulator,’ a category which includes private banks, insured credit unions, and certain trust companies. Up until now, these institutions had been covered by an exemption from the AML program requirements in the BSA. Although they were subject to a number of other BSA requirements, including the filing of CTRs and SARs. The FinCEN final rule subjects financial institutions to the same customer due diligence obligations that FinCEN imposed on federally-regulated banks in its 2016 CDD rule. Non-federally regulated banks are also required to implement customer identification programs (CIPs).

The FinCEN final rule establishes parallel AML program obligations for banks without a federal functional regulator which contains the same requirements as federally-regulated banks. Except for a provision that requires federally-regulated banks to comply with the requirements of their federal banking regulators. In particular, now, with the FinCEN final rule, banks without a federal functional regulator will be required to maintain an AML program that includes:

  1. Internal controls to assure ongoing compliance
  2. Independent testing for compliance
  3. Designation of an MLRO for coordinating and monitoring compliance
  4. Training of appropriate personnel
  5. Risk-based procedures for ongoing customer due diligence, which includes, understanding the nature and purpose of customer relationships for developing a customer risk profile, ongoing monitoring, and reporting of suspicious transactions, customer information needs to be updated based on the changes that affect customer risk
  6. A CIP to verify the identity of its customers
  7. Verification of the beneficial ownership of legal entity customers

The FinCEN final rule became effective recently, on November 16, 2020, and will be expected to comply starting on March 15, 2021. Banks without a federal functional regulator long have been required to file CTRs and SARs and to keep certain records, according to FinCEN. Along with this, certain banks without a federal regulator, which include private banks, non-federally insured credit unions, and trust companies, have for some time been required to have CIPs, justified FinCEN, when asked about the shorter timeframe. It reasoned that because it is difficult to comply with these obligations along with state law, without having some form of program, and bringing such programs would not be burdensome in line with the AML program requirements that apply to federal banks.

Under FinCEN requirements, it is also required that these obligations be extended to non-federal banks because law enforcement partners had provided evidence of bad actors taking advantage of the discrepancy in AML coverage. This includes “multiple investigations related to terrorist financing, espionage, narcotics trafficking, and public corruption.” The examination authority over such institutions has been delegated to the Internal Revenue Service, by FinCEN.

Apart from these FinCEN requirements, many FIs or “banks lacking a Federal functional regulator” have already been maintaining AML programs modeled on BSA regulations applicable to federally-regulated banks. They are positioned well to adjust to the new requirements without any disruption but should review their programs to confirm they cover all required elements and are being implemented effectively. Any institution that hasn’t been doing so will have to recruit staff and build effective programs over the next six months. This rule may be particularly impactful for the electronic currency industry – where state-chartered trust companies and international financial entities, both without a federal functional regulator have been popular choices for virtual currency businesses.

Read further to know more about RegTech that can enhance your company’s regulatory processes, or about other govt bodies that work towards money laundering, such as the Financial Action Task Force (FATF).

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How will Art Cease to Be a Preferred Money Laundering Vehicle?

Money laundering via high-end art and antiquities is not new yet it is difficult to detect. Art-related money laundering amounts to about US$3 billion per year, according to this blog, quoting the Uni...

Beware! Money Mules in Demand amid COVID-19. Here’s an Effective Cure

If reports are to be believed, cybercrooks are taking advantage of the COVID-19 situation. They are targeting people who were laid off or working from home due to the pandemic to work for them as mone...

How do we weather a tornado of change?

“Great works are performed not by strength but by perseverance” – Samuel Johnson All of us are in challenging times. However, we cannot afford to be lethargic to life, work, and busi...

Roundtable Rewind: Embracing Next-gen Tech & Collaboration Key to Sustainability

As a regtech player with a vision to enable sustainable compliance programs in financial institutions, Tookitaki organized a first-of-its-kind industry roundtable in Charlotte, NC, USA to discuss oppo...

Tookitaki Appoints Industry Veteran Joe Friscia as Advisor

Tookitaki Holding Pte. Ltd. appointed industry veteran Joe Friscia, former President of NICE Actimize and BAE Systems as Advisor to the Company’s Advisory Board. Joe brings over 25 years’ extensi...

Should Modern Machines Be Ethical?

There are mounting concerns across the globe about the reliability and safety of artificial intelligence (AI) based systems and its enabling technologies such as machine learning (ML). On the air are ...

Tookitaki Raises Another US$11.7 million in Series A; Closes Round at US$19.2 million

– by Abhishek Chatterjee, Founder & CEO The Tookitaki team and I are excited to announce that we have raised an additional US$11.7 million in Series A funding, taking the total investment in...

30 Years of FATF: Notable Facts About Global AML Watchdog

The Financial Action Task Force (FATF), the intergovernmental body formed in 1989 to combating money laundering, is celebrating its 30th anniversary this year. Since its inception, the global agency p...

Tookitaki Joins Aite Financial Crime Forum as Sponsor

Technological advances have fundamentally changed the operational landscape of financial institutions. However, there are also new risks emerging in forms of sophisticated financial frauds and complex...

Will Machine Learning Replace Compliance Professionals?

The impact of modern technologies such as artificial intelligence (AI) and machine learning on job security has been a widely discussed topic today. Of course, AI has advanced very quickly in the last...

6 Most Prevalent Cyber-Laundering Methods in APAC

Despite being a medium to exchange information in real-time and with scale, the Internet is being misused in several ways. Among the slew of financial crimes facilitated by the Internet, money launder...

What Made Us Earn the WEF Technology Pioneer Title

Tookitaki has bagged another global acknowledgement for its outstanding works in the regulatory compliance field. Our company was selected among hundreds of candidates as one of the World Economic Fo...

We Stay as a Team, We Win as a Team and We Flourish as a Team

“Teamwork is the ability to work together toward a common vision. The ability to direct individual accomplishments toward organizational objectives. It is the fuel that allows common people to a...

ABA Regulatory Compliance Conference: 10 Sessions You Can’t Miss

The 2019 edition of the American Bankers Association (ABA) Regulatory Compliance Conference is a few more days away. Organized by the Washington, D.C.-based trade association, the conference is touted...

Tookitaki AMLS Wins SBR Technology Excellence Award 2019

Tookitaki’s Anti-Money Laundering Suite (AMLS), an end-to-end machine learning-powered transaction monitoring and names screening solution, has bagged the inaugural Singapore Business Review Tec...

Watchdogs Grow Optimistic about AI Prospects at Banks

Proper regulation of banking operations is important as any failure in the banking system would affect the wider economy. Therefore, banking is one of the most regulated industries across the globe. F...

Pitfall of Black Box AI at Banks: Explaining Your Models to Regulators

The use cases of artificial intelligence (AI) and machine learning in front-office, middle-office and back-office activities at banks are growing slowly but steadily. The major areas of AI play includ...

AI for Regulatory Compliance at Banks: 4 Assessments Before You Okay the Solution Proposal

Banking is one of the industries where artificial intelligence and machine learning find their applications at a rapid pace. Regulatory compliance within banking is an area which has become a costly a...

We Believe in Innovation, the Key to Survival and Growth

“Innovation distinguishes between a leader and a follower.” -Steve Jobs What comes on the top of your screen when you google the meaning of the word innovation is – the introduction of somet...

Compliance Functions in Need of a Technological Overhaul. Can Machine Learning be the Game-Changer?

McKinsey in its latest compliance benchmarking survey found that compliance function at financial institutions has reached “an inflection point” and current compliance standards are in an “incho...

Tookitaki Raises US$7.5 mn Series A from Global VCs to Transform Regulatory Compliance

Tookitaki, a regulatory technology company that aims to enable financial institutions to develop sustainable compliance programs, has raised US$7.5 million in Series A round. The round was co-led by L...

From Wachovia to Danske Bank: Biggest Money Laundering Cases in Recent Times

Money laundering – the criminal activity of processing criminal proceeds to disguise their origin – is one of the gravest problems faced by the global economy, and its size is growing rapidly. It ...

A Modern Approach to Address the Reconciliation Challenges of Financial Services

Reconciliation of transactions is deemed critical for the smooth running of every financial institution. The speed and accuracy of data reconciliation can distinguish a successful institution from its...

Busting a Myth: Compliance Officer’s Job is All About Risk

Regulatory compliance has become a dreadful task for banks after regulators across the globe set stricter norms in the aftermath of the 2008 financial crisis in an effort to prevent financial crimes s...

SocGen Goes Next-Gen with Tookitaki Reconciliation Suite

Société Générale leveraged Tookitaki’s Reconciliation Suite to automate the bank’s existing break reconciliation system. Key Challenges Addressed The bank’s finance department was unable to ...

Attending ACAMS Conference in Singapore? Tookitaki Awaits You with Its Disruptive AML Solution

“In today’s era of volatility, there is no other way but to re-invent. The only sustainable advantage you can have over others is agility, that’s it.”- Jeff Bezos Singapore is hosting ACAMS’...

MAS’ Stress on Transaction Monitoring for Effective AML/CFT Compliance and Machine Learning is the Answer

Singapore is known for its top-notch AML/CFT regime created through up-to-date legislation, stringent policy and uncompromising supervision to safeguard against the abuse of the city state’s financi...

Mifid II and the Pressing Need for a New Reconciliation Approach

The financial services industry in the EU has been confused with the introduction of a revamped version of the Markets in Financial Instruments Directive (Mifid II). The ambitious regulatory reforms t...

Is Automated Reconciliation Next to Impossible in Today’s Complex Financial World?

The 2008 global financial crisis and fairly new regulatory requirements like Basel III asked financial institutions (FIs) to cut operating costs and adopt a lean operations structure, pushing FIs to r...

Modern Tech to Reshape US AML Compliance with Regulators’ Recent Handshake

George Bernard Shaw once said: “Those who cannot change their minds cannot change anything.” The past week has seen a significant change of mind from financial regulators in the US in their ardent...

Skills Development: We Have Talents and We Strive to Multiply Them

“Mastery lies on an infinite continuum, and as a result, we will never reach the end. We can, however, see to it that we are as far along that continuum as our circumstance allows.” ― Chris Mat...

It’s Our Fourth Founding Day; Taking a Pause to Cherish Our Simple but Awesome Journey

Today, as we step into our 4th year of foundation, I feel proud and honored to be leading Tookitaki that has been successful in creating added value to all its stakeholders. I was never a CEO and Took...

Tookitaki Expands into the US with New Office in Charlotte

SINGAPORE, Sept. 24, 2018: Tookitaki Holding Pte Ltd, a leading regulatory technology company, is pleased to announce the official opening of its North American office in Charlotte, NC, in the Unite...

We Tame Machines but We Unleash Human Spirits

We are well aware of the fact that our progress as an organization is in the hands of our employees. The more energy, time and attention we invest in them, the more yield we receive. So, we always mak...

5 Methods That Modern Money Launderers Use To Beat Detection

Society prepares the crime, the criminal commits it. DID YOU KNOW? Every year, an estimated amount in the range of US$800 billion-US$2 trillion (2-5% of global GDP) is being laundered globally Regulat...

Risk Management Conference: Positive Vibes from All Corners

The Risk Management Association’s (RMA) premier annual event, the Risk Management Conference, came to an end on 6 November, and Tookitaki had the privilege to attend the event which we believe was ...

Singapore Fintech Festival: Tookitaki to showcase advanced machine learning solutions in financial services

Singapore is assured of the Fintech world’s unwavering attention next week, as the city state, is hosting this year’s Fintech Festival during 12-16 November. Touted as the world’s largest platfo...

The RMA Clarion Call to Address Risks and the Tookitaki Way

Risk officers, doing your best today is good while preparing hard for tomorrow is extraordinary. Risk management at banks has become difficult due to operational and regulatory changes. The Risk Manag...