Fed Joins Banking Regulators to Overhaul Financial Crime-Fighting Rules

The Federal Reserve Board plans to amend its requirements for banks to maintain anti-money laundering (AML) programs to, among other things, require them to focus their AML resources based on risk.

In addition to requiring bank to give more attention to higher-risk customers and activities, the Federal Reserve Board plans to require banks to incorporate the Financial Crimes Enforcement Network’s (FinCEN) AML priorities into their risk assessment processes, the Fed said in a Tuesday (July 7) press release.

The Fed also plans to focus its own supervision and enforcement activities on significant failures of banks to implement their own AML program once they have established it.

These changes are included in a notice of proposed rulemaking the Fed released Tuesday to amend its requirements for banks to maintain AML programs. The Fed invites comment on the proposal for 60 days after its publication in the Federal Register, according to the release.

The Fed said in its proposal that these changes are intended to align with those that were proposed separately by FinCEN and by three other agencies in April. Those agencies include the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC) and the National Credit Union Administration (NCUA).

The Federal Reserve Board approved the proposed regulations Monday (July 6) by a vote of 6 to 1.

Governor Michael S. Barr voted against the proposal, saying in a statement that he could not vote for “the introduction of a new, undefined standard for issuing matters requiring attention and for enforcement actions.”

“I am concerned that the ‘significant or systematic’ standard may have unknown effects on the Board’s ability to effectively substantiate that a supervised institution establishes and maintains AML and CFT [countering the financing of terrorism] programs in compliance with the rule. I believe it is critical that the Federal Reserve maintain a strong AML/CFT supervisory program.”

FinCEN announced in April a proposed rule that it said would “fundamentally reform” financial institutions’ AML/CFT programs by reducing the compliance burden and promoting risk-based programs.

The FDIC, the NCUA and the OCC announced the same day that they issued a proposed rule that align their AML/CFT rules with those proposed by FinCEN.

Secretary of the Treasury Scott Bessent said at the time in a press release: “For too long, Washington has asked financial institutions to measure success by the volume of paperwork rather than their ability to stop illicit finance threats. Our proposal restores common sense with a focus on keeping bad actors out of the financial system, not burying America’s banks in more red tape.”