Knowledge and Insights

The Federal Financial Institutions Examination Council (FFIEC) recently made significant changes throughout more than a dozen sections of the Bank Secrecy Act and Anti-Money Laundering (BSA/AML) Manual, the first update in four years. All banks and third parties with relationships with issuing banks should take note of the update, which emphasizes the importance for such third parties to adopt policies, procedures and practices similar to those of banks to enhance their value as a trusted partner that can operate in an examination-ready-like state.

The FFIEC is a formal, intra-agency body empowered to prescribe uniform principles, standards and report forms for the federal examination of financial institutions by the Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), the Office of the Comptroller of the Currency (OCC), and the Consumer Financial Protection Bureau (CFPB), and to make recommendations to promote uniformity in the supervision of financial institutions. In 2006, the State Liaison Committee (SLC) was added to the Council as a voting member. The SLC includes representatives from the Conference of State Bank Supervisors (CSBS), the American Council of State Savings Supervisors (ACSSS), and the National Association of State Credit Union Supervisors (NASCUS). It is sort of a one-stop shop for bank examiners looking for consistency between state and federal regulations.

The revised manual provides current guidance on risk-based policies, procedures and processes for banking organizations to comply with the BSA and safeguard operations from money laundering and terrorist financing. For banking organizations expecting or worried that the manual will include significant new requirements, the good news is: that’s not the case. Apart from offering guidance on risk factors for certain high-risk activities, the changes for the most part incorporate various legal and regulatory updates that have occurred since the prior version of the manual was released in 2010. The updated manual is, in fact, silent on some significant issues currently facing the industry, such as the continuing conflicts between state and federal laws related to marijuana businesses or the specific application of the regulators’ model validation guidance to AML-related systems. In the OCC bulletin, there’s a special note for community banks stating the applicability of the current guidance to all OCC-supervised institutions.

Revisions were made throughout the manual. There are 13 sections with more significant revisions.

• Suspicious Activity Reporting (SAR) – Incorporates new SAR E-Filing requirements; guidance on the extension of SAR filing for continuing activity; clarification of prohibitions on disclosing a SAR; and guidance on sharing SARs with affiliates.
• Currency Transaction Reporting (CTR) – Revised to incorporate new CTR E-Filing requirements and new guidance issued by FinCEN since 2010, related to currency transaction aggregation for businesses and exemptions.
• Foreign Correspondent Account Recordkeeping, Reporting and Due Diligence – Includes regulations relating to the Comprehensive Iran Sanctions, Accountability and Divestment Act (CISADA).
• Foreign Bank and Financial Accounts Reporting (FBAR) – Incorporates new FBAR filing requirements.
• International Transportation of Currency or Monetary Instruments Reporting (CMIR) – Clarifies monitoring and reporting obligations under the BSA for international transportation of currency or monetary instruments.
• Correspondent Accounts – Includes additional guidance in the section on risk mitigation.
• Bulk Shipments of Currency – Revised to incorporate FinCEN’s CMIR guidance for common carriers of currency, including armored car services (August 1, 2014), and to clarify monitoring and reporting obligations under the BSA.
• Automated Clearing House Transactions (ACH) – Incorporates National Automated Clearing House Association (NACHA) – The Electronic Payments Association modifications related to international ACH transactions and further defines third-party service providers.
• Prepaid Access – Replaces Electronic Cash section. Includes an expanded discussion of risk factors and risk mitigation related to prepaid access.
• Third-Party Payment Processors – Updated to reflect inter-agency guidance issued since 2010.
• Embassy, Foreign Consulate and Foreign Mission Accounts – Updated to incorporate the inter-agency guidance on accepting accounts from foreign embassies, consulates and missions.
• Nonbank Financial Institutions – Incorporates new FinCEN regulations for Money Services Businesses (MSBs) related to certain foreign-located persons engaging in MSB activities; new regulations related to prepaid access programs; and guidance regarding virtual currency administrators and exchangers.
• Appendix T: BSA E-Filing System – Created to provide examiners with information on the FinCEN BSA E-Filing System.

In summary, BSA/AML (including sanction compliance) is an area of intense scrutiny by both banking regulators and law enforcement.  The magnitude and frequency of penalties and fines for non-compliance are strong signals to the industry that AML is and will continue to be of high importance. While the changes to the Manual are less significant than some might have expected, banking organizations are nonetheless encouraged to benchmark their policy, procedures and practices against the updated guidelines and make any necessary changes in a timely manner to avoid regulatory criticism. We at Mercadien pride ourselves on staying ahead of the curve to assist clients through these challenges.  Contact our Financial Institutions Services Group at 609-689-9700 or [email protected] for further information on how we can help you.