The Financial Crimes Enforcement Network (FinCEN) is considering creating regulatory ‘sandboxes’ to help firms experiment with new technologies.
Himamauli Das, Acting Director of FinCEN, told a virtual conference on financial crime enforcement, that the regulator was considering how to innovate around transaction monitoring, customer risk ratings, digital identity, and automating processes for reviewing suspicious activity reports (SARs).
“FinCEN’s view is that our regulatory framework needs to approach these innovations in a way that recognizes not only the risks that they pose but the opportunities that they present,” he told the conference, hosted by the American Bankers Association and the American Bar Association.
In January 2021, FinCEN was tasked with creating a beneficial ownership registry to help prevent the use of anonymous shell companies for illegitimate financial reasons, which has sparked ongoing debate. The issue was raised at the conference, with experts examining how it is expected to function.
FinCEN’s James Martinelli also told conference delegates that there was not much he could say at this stage, other than it’s a “very critical issue” and encourage people to comment.
But financial institutions and other stakeholders have expressed diverging views on how the new collection process should work, in public comments on the proposed database. One major concern is if, and how, ownership information will be verified, and who will have access to it.
The Anti-Money Laundering Act 2020
The collection of beneficial ownership information and disclosure of it to appropriate parties, including federal law enforcement, by FinCEN, is mandated under the Corporate Transparency Act, which is part of the Anti-Money Laundering Act of 2020 (AMLA).
The AMLA is the most significant anti-money laundering legislation passed by Congress in several decades and firms and regulators are still unpicking its ramifications since it became law in January 2021.
Prior to AMLA, there was no requirement in the US for companies to provide beneficial ownership information to a state or federal database. Supporters of this provision believe the lack of beneficial ownership reporting has provided a loophole for criminals to conduct business and transfer money through opaque ownership structures.
The AMLA also helps to enable firms to share AML/BSA-related information with their foreign branches, subsidiaries, and affiliates. It codifies prior guidance authorizing financial institutions to work together to share information with other firms to provide information about potentially suspicious activity and help enhance AML/BSA compliance.
Treasury and FinCEN are required to conduct a pilot study regarding information sharing, and FinCEN has proposed new measures to do just that.
In a January Notice of Proposed Rulemaking (NPRM), FinCEN has asked for public comment on plans to create a two-year pilot program enabling banks with a suspicious activity report (SAR) reporting obligation to share them more easily with foreign branches, subsidiaries, and affiliates.
FinCEN says the sharing of information will be limited by the requirements of federal and state law enforcement, take into account potential concerns of the intelligence community, and is subject to standards and requirements regarding data security and confidentiality. Read more about the new proposals here.
Further guidance around the AMLA is likely to be issued through 2022, and compliance teams should ensure they stay up-to-date on any developments. For any firms taking part in the new pilot program, it will be important to document key outcomes and ensure SAR sharing processes are established.
With FinCEN focusing on innovation in transaction monitoring, customer risk ratings, digital identity, and automating SARs processes, firms should consider these as key areas for development when deciding where and how to automate/upgrade existing AML solutions.
Find out more about the state of financial crime in 2022 by pre-registering for this year’s report.
Originally published January 27, 2022, updated February 10, 2022
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