OCC’s Rule on SARs May Boost Innovation on AML Reporting

On May 1, a new rule issued by the Office of the Comptroller of the Currency (OCC) that modifies the requirements for national banks and federal savings associations to file suspicious activity reports (SARs) will start to be applicable.  

The new rule amends the OCC’s SARs regulations to allow the OCC to issue exemptions from the requirements of those regulations upon request from a financial institution. The purpose of this amendment is three-fold: first, it harmonizes the OCC’s legal authority with the preexisting exemption authority of the Financial Crimes Enforcement Network (FinCEN), second, it makes it possible for the OCC to facilitate changes required by the Anti-Money Laundering Act (AML) of 2020, and third, it will make it possible for the OCC to grant relief to banks and other institutions to develop innovative solutions to meet Bank Secrecy Act requirements more efficiently.  

While the two first goals are mostly a regulatory need, the third objective is worth mentioning, as this may represent another step by a federal agency to encourage digital, innovative solutions for the detection of suspicious activities. PYMNTS has reported FinCEN’s previous praise for automated systems for customer due diligence. More recently, on April 5, the regulator launched a project to boost digital identity solutions to reduce fraud.  

Read More: FinCEN Praised Automated AML Systems, Digital Identity Solutions  

In this occasion, the OCC’s rule may seem counterintuitive, as it allows the OCC to provide exemptions to banks from certain SAR requirements — but this exemption and the flexibility that it offers would allow banks and savings associations to try innovative approaches and technological developments in SAR monitoring, investigation, and filings. 

“As financial technology and innovation continue to develop in the area of monitoring and reporting financial crime and terrorist financing, the OCC has identified a need for regulatory flexibility to grant exemptive relief when appropriate,” reads the final rule issued by the OCC. 

Under the previous rules, the OCC couldn’t provide an exemption to a bank with an innovative SAR proposal that wouldn’t “squarely fit” within the regulatory requirements but would be consistent with AML regulatory and soundness standards. 

The final rule will allow the OCC to issue exemptions from the requirements of the OCC to these proposals. However, banks will continue to be required to comply with FinCEN’s SARs regulation. The OCC is expected to coordinate with FinCEN if there is a request for separate approvals, but FinCEN would have to issue a parallel exemption. Some of the companies that submitted comments to the rule proposal suggested that these double proceedings risk having inconsistent outcomes or that may allow fraudsters to use banks that they know are exempted from SARs. 

According to the OCC, the new technological developments in SAR may involve, among other things “(i) automated form population using natural language processing, transaction data, and customer due diligence information; (ii) automated or limited investigation processes; and (iii) enhanced monitoring processes using more and better data, optical scanning, artificial intelligence or machine learning capabilities. The OCC is opening the door for new solutions using highly innovative technology and it is also anticipating “the use of shared utilities and data, and the use and sharing of de-identified data (commonly referred to as anonymized data).”

Interestingly, the OCC may also allow banks and savings associations to tailor their monitoring for suspicious activities to focus on high-risk customers and activities and not file SARs in certain situations involving lower risk customers and activities. This is because the AMLA of 2020 provided that compliance programs should ensure that “more attention and resources of financial institutions should be directed toward higher-risk customers and activities, consistent with the risk profile of a financial institution, rather than toward lower risk customers and activities.”