FinCEN and FRB Jointly Issue Final Rule Amending the Definitions of “Funds Transfer” and “Transmittal of Funds”

On December 4, 2013, the Financial Crimes Enforcement Network (“FinCEN”) and the FRB jointly issued a final rule (the “Final Rule”) amending the definitions of “funds transfer” and “transmittal of funds” under the regulations implementing the Bank Secrecy Act, 31 CFR §§ 1010.100(w) and 1010.100(ddd), respectively, in order to prevent certain historically-covered transactions from falling outside the scope of the definitions as a result of changes to the Electronic Fund Transfer Act, first enacted in 1978 (the “EFTA”), and its implementing regulations.  The Final Rule adopts the amendments as proposed by FinCEN on December 6, 2012.

Under the regulations implementing the Bank Secrecy Act, banks and nonbank financial institutions are required to collect and retain information on funds transfers of and transmittals of funds of $3,000 or more (the “Recordkeeping Rule,” see 31 CFR § 1020.410(a) (recordkeeping requirements for banks) and 31 CFR 1010.410(e) (recordkeeping requirements for nonbank financial institutions)).  Additionally, the so-called “Travel Rule” requires banks and nonbank financial institutions to include certain information on funds transfers and transmittals of funds of $3,000 or more sent to other banks or nonbank financial institutions.  See 31 CFR § 1010.410(f).

Under the old definitions, transmittals of funds and funds transfers governed by the EFTA as well as any other funds transfers that are effected through an automated clearinghouse, an automated teller machine, or a point-of-sale system, were excluded from the definitions of “transmittal of funds” and “funds transfer.”  When the Recordkeeping and Travel Rules were adopted, the EFTA governed only electronic funds transfers, as defined in section 903(a)(7) of the EFTA, and the exclusions were intended to cover certain types of transactions and payment systems used mostly for domestic retail transactions and payments.

The Dodd-Frank Act added a new section 919 to the EFTA, creating a new system of consumer protections for remittance transfers sent by consumers in the United States to individuals and businesses in foreign countries.  According to FinCEN, that section defines “remittance transfers” “broadly,” so that most electronic transfers of funds sent by consumers in the United States to recipients in other countries, including international funds transfers sent by consumers through banks, and cash-based or account-based transmittals of funds sent by consumers through money transmitters (which have historically been covered by the definitions of transmittal of funds and funds transfer) will be subject to the new protections of the EFTA (and thus excluded from the definitions of “funds transfers” and “transmittal of funds” and the purview of the Recordkeeping and Travel Rules).  Accordingly, the Final Rule amends the definitions of transmittal of funds and funds transfer to exclude only “electronic fund transfers as defined in section 903(7) of the Electronic Fund Transfer Act,” rather than any funds transfer governed by the EFTA, so that any remittance transfer covered by section 919 of the EFTA, but not meeting the definition of electronic fund transfer set forth in section 903(a)(7) of the EFTA, would continue to be covered by the Travel and Recordkeeping Rules.

The Final Rule will be effective January 3, 2014.

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