On January 12, South Dakota’s Division of Banking issued a mandate setting March 31, 2024 as the deadline for all South Dakota licensed money lenders and non-residential mortgage brokers to comply with their Bank Secrecy Act/Anti-Money Laundering (BSA/AML) requirements under a 2020 Final Rule published by the Financial Crimes Enforcement Network (FinCEN). FinCEN’s 2020 Final Rule notably closed a regulatory loophole, extending BSA/AML requirements to banks that lack a federal functional regulator. A “federal functional regulator” is any one of the following: Federal Reserve Board, FDIC, NCUA, OCC, OTS, SEC, or CFTC. There are over 550 banks that currently lack a federal functional regulator, consisting of state-chartered, non-depository trust companies, non-federally insured credit unions, and some international banking entities.
The South Dakota Division of Banking now requires all non-depository financial institutions to adhere to the same BSA/AML compliance program standards as banks. Beginning in Q3 2024, the Division will include BSA/AML compliance as part of the scope of examinations for South Dakota money lenders and non-residential mortgage lenders. A compliant program includes risk assessment, policy development, designation of a compliance officer, employee training, implementation of a Know Your Client (KYC) program with Customer Identification Programs (CIP) and Customer Due Diligence (CDD), transaction monitoring, FinCEN e-filing registration, reporting of Suspicious Activity Reports (SARs) and Currency Transaction Reports (CTRs), and independent audits.
Putting it into Practice: South Dakota money lender licensees and non-residential mortgage lenders are encouraged to review and enhance their existing BSA/AML compliance programs to align with the new requirements. South Dakota’s latest move reflects a broader trend of states shifting towards stricter regulatory oversight of financial transactions. In January, the FRB and New York Department of Financial Services fined a large global bank $32.4 million for BSA/AML and other compliance failures. Lenders across other states should consider proactively adjusting their practices in anticipation of increased regulatory scrutiny.