Financial Institution Risk Assessment in Puerto Rico Sees Positive Change
The United States Department of the Treasury has made a positive change in its assessment of Puerto Rico’s International Banking Entities (IBEs), International Financial Entities (IFE), and Cooperatives, removing them from its list of most significant “vulnerabilities and risks” related to anti-money laundering/combating the financing of terrorism (AML/CFT) policy.
Background
In its previous report, issued in February 2022, the Treasury Department included a section dedicated to Special Focus: Non-federally Chartered Puerto Rican Financial Entities, highlighting the risks posed by IBEs, IFE, and cooperatives due to their lack of federal regulation requiring anti-money laundering programs. However, a rule issued by the Financial Crimes Enforcement Network (FinCEN) in March 2021 made such requirements equally applicable to these Puerto Rican financial entities.
Positive Change
The change reflects recognition of the improved oversight conducted by Puerto Rico’s regulatory body over the past three years to demand strict compliance with applicable laws and regulations. This positive change is crucial for the island’s entire banking and financial system, as being included on the list of most significant vulnerabilities and risks generated a bad reputation that affected all financial institutions, even law-abiding banks.
Legislative Changes
Puerto Rico’s regulatory body welcomed Governor Pedro Pierluisi’s signing into law legislation (House Bills 1699 and 1700) aimed at strengthening regulation and oversight of IBEs and IFEs. The new laws amend the International Banking Center Law and the International Financial Center Law to modernize and strengthen regulations, making them more efficient and better prepared to face market changes.
Key Changes
The legislation seeks to:
- Demand an even higher level of compliance with anti-money laundering laws
- Increase the Office of the Commissioner of Financial Institutions’ discretion in granting or denying permits or licenses
- Raise minimum capitalization requirements
- Broaden scope of investigation
- Increase bail requirements
- Broaden Commissioner’s authority to deny applications
Impact
This positive change in US Treasury’s assessment is seen as a significant improvement for Puerto Rico’s financial institutions, which are now subject to the same anti-money laundering requirements as their federal counterparts. The removal of IBEs, IFE, and cooperatives from the list of most significant vulnerabilities and risks is a testament to the improved oversight and compliance measures implemented by the regulatory body.
Conclusion
The change in US Treasury’s assessment is a positive step forward for Puerto Rico’s financial institutions, which are now better equipped to comply with anti-money laundering requirements. The legislative changes aimed at strengthening regulation and oversight of IBEs and IFEs will further improve the island’s financial system and reputation.