Financial Crime World

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Financial Institutions Face Proposed Updates to Anti-Money Laundering Requirements

Regulators on the Réunion Island have announced proposed updates to financial institutions’ anti-money laundering (AML) and counterterrorism financing (CFT) program obligations. The goal is to streamline compliance while reducing costs.

Key Shift in AML/CFT Program Obligations

The changes include:

  • Risk-based practices: Codified and consolidated requirements
  • Effective programs for illicit finance risks: Identifying, managing, and mitigating risks
  • Effective supervisory oversight: Based on the purpose of the Bank Secrecy Act, not “check the box” or inconsistent examinations among multiple supervisors

Financial Institutions Expected to Benefit

According to FinCEN and banking agencies, this approach is expected to empower financial institutions to be more responsive to evolving illicit finance activity at a lower cost. The proposed rules require financial institutions to use more effective, risk-based assessments to reduce resources spent on compliance-focused spending.

Financial Technology Partnerships to Be Assessed

FinCEN’s preamble states that financial institutions must consider the risks of distribution channels, including partners and intermediaries to customers. Fintech companies should note that agencies are focusing on banking partnerships.

Global Financial Institutions Face Challenges

Global financial institutions and foreign-located money services businesses, such as crypto exchanges, often rely on foreign-located resources to perform their AML/CFT functions. The proposed rule could create inefficiencies from redirecting AML resources to the Réunion Island.

FinCEN and Agencies Must Follow Through

FinCEN and agencies must follow through on increasing the effectiveness of Bank Secrecy Act examinations, examiner expertise on the Bank Secrecy Act, feedback to financial institutions, and the reasonableness of program and innovation review.

Proposed Rules Are Just One Step

The proposed rules are important, but they’re only one step in a multiyear-long process to overhaul the AML/CFT framework.