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Focusing on FinCEN’s New Requirements

Published Date

The sands of regulatory change are, as ever, shifting – this time towards modernization in the compliance regimes of financial institutions (FIs) in the United States. 

FinCEN Issues Multiple NPRMs

Multiple notices of proposed rulemaking (NPRMs) have been issued by the Financial Crimes Enforcement Network (FinCEN) that seek to address some long-known issues in compliance. The United States is perhaps the biggest actor on the global financial stage – and that influence extends to its financial regulators, whose movements regulated firms must keep up with or risk consequences like financial penalties. 

FinCEN has steadily ramped up momentum around anti-money laundering (AML) and countering the financing of terrorism (CFT). The regulator recently issued a proposed rule to strengthen and modernize financial institutions AML/CFT programs which would amend the Bank Secrecy Act (BSA) to make requirements more explicit and detailed.

Enforcement Activity from the 2023 Fiscal Year

In June, FinCEN issued its Year in Review for Fiscal Year 2023. Some of the most critical data uncovered in the report is around suspicious activity reports (SARs) submission volumes. FinCEN received approximately 4.6 million SARs - an average of 12,600 reports a day. Some SARs have multiple categorizations; the largest category was 3.17 million reports of “other suspicious activity”, the rest were:

  • 1.75 million related to fraud
  • 1.63 million concerned money-laundering
  • 1.31 million related to structuring

Of the 1.63 million reports submitted for money laundering in 2023, only four resulted in enforcement penalties being issued to FIs for non-compliance with AML/CFT requirements. So far in the 2024 fiscal year, FinCEN has issued just one enforcement fine to an FI, though this is not a huge change from 2023’s figures as the regulator had only issued one fine by this same hallway point last year – to a US-based trust company for $1.5 million.

FinCEN is Pushing Financial Institutions to Modernize Their Compliance Programs 

The changes proposed by FinCEN would bring greater clarity to AML/CFT requirements that would enable FIs to better focus their compliance resources.

According to FinCEN’s press release on the matter, the NPRM is largely in response to Russia’s ongoing invasion of Ukraine and the US Government’s unrelenting mission to crack down on fentanyl trafficking.

The Deputy Secretary of the Treasury Wally Adeyemo said, “It has been an important priority for Treasury to issue this proposed rule that promotes a more effective and risk-based regulatory and supervisory regime that directs financial institutions to focus their AML/CFT programs on the highest priority threats.”

The proposed rule would achieve three key goals:

1) Amend existing program rules 

The aim is to explicitly require financial institutions to establish, implement, and maintain effective, risk-based, and reasonably designed AML/CFT programs with certain minimum components, including a mandatory risk assessment process.

2) Require financial institutions to review AML/CFT priorities

The review would require FIs to incorporate these priorities into the appropriate risk-based programs, as well as provide for certain technical changes to program requirements.

3) Create consistency

Promote clarity and consistency across FinCEN’s program rules for different types of financial institutions

Following in FinCEN’s footsteps, in July four other federal agencies proposed a join rule that would align the Bank Secrecy Act (BSA) program requirements of each agency with FinCEN’s proposed requirements. 

Upcoming FinCEN Requirements that Financial Institutions Need to Prepare for

Beneficial ownership information reporting

On the 1st January, 2024, a press release was issued by FinCEN announcing a development around beneficial ownership information (BOI) reporting – the regulator had begun accepting beneficial ownership information reports from financial institutions. The release stipulated that existing companies had one year to file, and that new companies must file within 90 days of creation or registration. 

In many other parts of the world, BOI regulation has undergone reform so this latest development from FinCEN does a lot to bring the US in line with the likes of Europe when it comes to uncovering the ultimate beneficial owner(s) of an entity. We explain the new reporting requirements here.

New investor advisor requirements

Incoming financial crime regulation for investment advisors has been expected for quite a while. In February 2024, it became apparent that it was only a matter of time before the industry faced more intensive scrutiny.

The SEC and FinCEN have proposed new requirements for customer identification for registered investment advisers (RIAs) and exempt reporting advisers (ERAs). The rule mandates that RIAs and ERAs create, document, and uphold written customer identification programs (CIPs). This initiative aims to enhance the AML/CFT framework within the investment adviser industry, with the goal of combating illicit financial activities associated with investment adviser clients.

Screening for fentanyl-related financial crime

US Treasury and FinCEN have begun working together to screen for fentanyl-related financial crime through the Promoting Regional Outreach to Educate Communities on the Threat of Fentanyl (PROTECT) series. 

PROTECT comprises a series of FinCEN Exchange sessions in cities hit hard by the opioid crisis, engaging local banks to improve monitoring of fentanyl-related activities. Partnering with government agencies such as the DEA and Homeland Security, the effort aims to disrupt financial channels fueling the illegal drug trade. 

FinCEN Director, Andrea Gacki, commented: “The PROTECT series will enhance FinCEN’s collaboration with our law enforcement and financial institution partners to combat the scourge that is our nation’s opioid crisis.”

PROTECT highlights the demand for increased public-private information sharing to combat the opioid crisis. The initiative is a product of the Counter-Fentanyl Strike Force, initiated in 2023, which consolidates resources to tackle illicit fentanyl activities and is now urging financial institutions to report suspicious transactions related to the drug.

Meet Scaling Demands with Technology

FinCEN has made it clear that speed and flexibility are central to solving regulatory demands with tight timeframes and the expansion of obligated industries. 
Manual approaches are unable to react or scale appropriately. Fenergo offers solutions to help institutions efficiently meet FinCEN's compliance mandates through automated AML/CFT processes, reducing costs and improving risk management. 

By leveraging Fenergo, FIs can achieve regulatory compliance while gaining a competitive advantage. Using a community-led approach to address the lack of horizon scanning capabilities among FIs, Fenergo encourages collaboration to navigate AML and KYC regulations effectively. 

Our regulatory analysts monitor and translate regulatory changes into system rules, simplifying compliance efforts through a user interface that allows easy configuration. By digitalizing KYC policies and combining with real-time transaction monitoring, Fenergo streamlines compliance procedures, providing pre-packaged content for relevant jurisdictions. Making it simple to solve for FinCEN’s proposals.

Read more about FinCEN's 2024 activity as well as regulatory updates from the EU and Asia-Pacific in our report.