The Financial Crimes Enforcement Network (FinCEN) has issued an Advance Notice of Proposed Rulemaking (ANPRM) for a no-action letter process, which would enable regulated entities to receive feedback on whether certain services, products, and/or actions would breach federal anti-money laundering (AML) laws and regulations. The ANPRM follows a report submitted to Congress last year which evaluates the pros/cons of a no-action letter process.
FinCEN was required to consider a no-action letter process under Section 6305(a) of the Anti-Money Laundering Act of 2020. In its report to Congress, FinCEN stated that a no-action letter process could help encourage innovation in financial services for anti-money laundering/combating the financing of terrorism (AML/CFT) and compliance functions.
Three federal financial services agencies currently issue no-action letters, including the Securities Exchange Commission (SEC), the Consumer Financial Protection Bureau (CFPB), and Commodity Futures Trading Commission (CFTC).
FinCEN is now soliciting feedback on its proposed no-action process until August 5, 2022.
No-action letters: Pros and cons
In its report to Congress, FinCEN analyzed whether a formal no-action letter process would help mitigate or accentuate illicit finance risks in the US. While both pros and cons of the process were detailed, FinCEN concluded the implementation of a no-action process would be useful to supplement the existing forms of regulatory relief and guidance the agency already provides and enhance the overall effectiveness of AML/CFT frameworks implemented by financial institutions.
FinCEN noted in the report that a no-action letter process could spur communication between the regulator and the regulated parties, offering a quicker form of guidance and mitigating the spread of varying interpretations of regulations. Similar to the Financial Conduct Authority (FCA) providing a supportive sandbox environment, the no-action letter process is described by FinCEN as an “expedited dialogue” that will allow regulated entities to seek confirmation that FinCEN will not pursue an enforcement action against a proposed activity.
However, the report to Congress also states it is aware the no-action letter process could accentuate illicit finance risk if an entity were to submit false, misleading, or incomplete information to FinCEN. Further, a submitting party could use their no-action letter as a means of avoiding regulatory scrutiny for additional conduct not considered by FinCEN in its initial decision.
FinCEN currently offers only two forms of regulatory guidance: administrative rulings and exceptive or exemptive relief. Both forms have their limitations and are often not made public. In contrast, a no-action letter process could provide regulated industries with more certainty regarding FinCEN’s position on their prospective activities, which could aid companies looking to utilize innovative processes that may not have been anticipated by older laws and regulations.
Compliance staff should ensure they are familiar with FinCEN’s report to Congress, noting the feedback that was submitted by government agencies in the initial consultation. Any feedback on the no-action letter process should be submitted to FinCEN by the deadline of August 5, 2022.
The Anti-Money Laundering Act of 2020 (AMLA)
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Originally published June 10, 2022, updated June 13, 2022