On July 3, the Financial Crimes Enforcement Network (FinCEN) published a proposed rule (the Proposal) to strengthen and modernize financial institutions’ anti-money laundering and countering the financing of terrorism (AML/CFT) programs under a part of the Anti-Money Laundering Act of 2020 (AML Act).[1] The Proposal would require financial institutions to establish, implement and maintain effective risk-based AML/CFT programs. The effectiveness standard and other technical changes contemplated by the Proposal are designed to “promote clarity and consistency across FinCEN’s program rules for different types of financial institutions.” The Proposal would also require financial institutions to establish a risk assessment process that would serve as the basis for the financial institution’s risk-based AML/CFT program.

The Proposal sets forth certain minimum considerations a financial institution’s risk assessment must consider, including:

• the AML/CFT Priorities issued by FinCEN;
• money laundering and terrorist financing risks of the financial institution, based on its business activities, products, services, distribution channels, customers, intermediaries, and geographic locations; and
• reports filed by the financial institution according to the Bank Secrecy Act (BSA) regulations (e.g., suspicious activity reports).

The Proposal highlights the need for financial institutions such as broker-dealers to look closely at their “distribution channels” when assessing the scope of their risk assessments. Distribution channels refer to the methods a financial institution uses to open accounts and provide products or services. This includes accounts opened remotely or through other “non-face-to-face means.”

Additionally, the Proposal stresses that financial institutions need to factor in their “intermediaries” when assessing AML/CTF risk. The term “intermediary” requires broker-dealers to consider customer and noncustomer relationships in the risk assessment process. The Proposal contemplates that suppliers that facilitate the introduction or processing of financial institutions, financial products and services, and customer-related financial activities are considered “intermediaries” and, therefore, must be part of the broker-dealer’s risk assessment. For many broker-dealers, this may be very different from what they have historically been doing with respect to risk assessments. 

FinCEN is accepting comments on the Proposal until September 3.

Footnote 

[1] 89 Fed. Reg. 55,428 (July 3, 2024).