On June 28, 2024, the US Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) issued a notice of proposed rulemaking (“June 2024 NPRM”) to crystalize its long-held expectation that financial institutions use risk assessments to design their anti-money laundering and countering the financing of terrorism (AML/CFT) programs. The June 2024 NPRM expressly requires these programs be effective, risk-based, and reasonably designed, thereby mandating that financial institutions expend resources to design effective, risk-based programs that reflect their unique customer risk profiles.
Comments on the June 2024 NPRM are due by September 3, 2024.
In this Legal Update, we provide background on FinCEN’s AML/CFT program requirements and the June 2024 NPRM. As discussed below, financial institutions should adopt or review risk assessment practices and ensure that their overall AML/CFT policies and procedures are up-to-date and reflect a risk-based approach to compliance.
Background
In 1970, the US Congress passed the Currency and Foreign Transactions Reporting Act, colloquially known as the Bank Secrecy Act (BSA), which requires financial institutions to monitor and report on certain customer activity for the purpose of combating money laundering and tax evasion.1
While the BSA covers a broad range of financial institutions, FinCEN has issued regulations implementing the BSA only for a smaller subset (“covered financial institutions”). Covered financial institutions include banks; casinos; money services businesses; broker-dealers; mutual funds; certain insurance companies; futures commission merchants; introducing brokers; dealers in precious metals, precious stones, or jewels; credit card system operations; certain loan and finance companies; and housing government-sponsored enterprises.2 For requirements for AML/CFT programs, such as those in the June 2024 NPRM, “financial institutions” includes those same entities.3
The changes proposed in the June 2024 NPRM are the result of changes to the BSA as enacted by the Anti-Money Laundering Act of 2020 (AML Act), which was...