Trade Associations Urge Update of BSA Regulatory Framework
Commentary by Christian Larson
SIFMA, the Institute of International Bankers, the American Bankers Association and others ("trade associations") urged the U.S. House Committee on Financial Services (the "Committee") to amend the "outdated" and "inefficient" Bank Secrecy Act ("BSA") regulatory framework. In addition, the trade associations called for the Committee to create a federal registry of the beneficial owners of legal entities.
The trade associations noted that the BSA regulatory framework is nearly 50 years old and "has not fundamentally changed since its adoption in 1970." The trade associations stated that the system incentivizes financial institutions to comply with technical requirements that "bear little relationship" to the goal of addressing financial crime.
To help clarify the "complex regulatory reporting structure," the trade associations recommended that the Secretary of the Treasury be required to:
- regularly publish national priorities for the anti-money laundering and countering the financing of terrorism (AML/CFT) regime and work to better align the regulatory examination and compliance framework with those stated priorities;
- facilitate information sharing and feedback between law enforcement and financial institutions, and further facilitate information sharing between financial institutions;
- update and streamline the process of submitting Suspicious Activity Reports ("SARs") and Currency Transaction Reports ("CTRs"); and
- encourage and support the use of technology and artificial intelligence within financial institutions' anti-money laundering programs.
Commentary
The Committee recently considered several BSA-related bills. There is a sense that the 116th may be the Congress that gets BSA legislation across the finish line. Several bills detail what a federal beneficial ownership registry of legal entities might look like. Several others include tweaks to the SAR and CTR thresholds. None of the bills to date would create the "fundamental change" the trade associations are calling for - a shift that would require regulators to focus not on technical compliance but instead on financial institutions' identification and management of financial crime risk.
The immediate question is how to craft rules to bring about that change. Requiring financial institutions of all sizes and levels of sophistication to develop robust risk models may be unreasonable; requiring them to consider technology solutions available through third parties likely is not. Thus one way to achieve the "fundamental change" being called for may be to shape regulatory expectations around financial institutions' use of technology and artificial intelligence to effectively model and manage financial crime risk.