FinCEN Rule Ends AML Program Exemption for Banks that Lack a Federal Regulator

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On September 15, 2020, the Financial Crimes Enforcement Network (“FinCEN”) published a Final Rule bringing banks that lack a federal functional regulator further under its purview. The rule subjects these institutions to minimum standards for anti-money laundering (“AML”) requirements, including a BSA officer, AML policies and procedures, and regular employee training, among other obligations. It also extends Customer Identification Program and beneficial owner requirements to these banks.

The banks subject to this new rule include state-chartered, non-depository trust companies; non-federally insured credit unions; private banks; and other non-federally regulated banks.

The Rule, in accordance with the May 11, 2016 Customer Due Diligence Final Rule, requires minimum standards for AML programs “to ensure that all banks, regardless of whether they are subject to Federal regulation and oversight, are required to establish and implement written AML programs, including conducting ongoing customer due diligence, and to identify and verify the identity of the beneficial owners of their legal entity customers.”

FinCEN issued this rule because the gap in AML coverage between banks with and without a Federal functional regulator “presented a vulnerability to the U.S. financial system that could be exploited by bad actors . . . .” Accordingly, by implementing this Rule, FinCEN stated in its press release that it has eliminated the existing AML program exemption for banks without a Federal functional regulator in an effort to “ensure [BSA] coverage across the banking industry.”

The Rule will take effect on November 16, and institutions will have 180 days from the day the Final Rule was published to comply with it. Banks subject to the new rule must act now to ensure they have a robust and compliant AML program in place to meet the Rule’s requirements by the compliance deadline of March 15, 2021.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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