US Regulators to Unveil Leaner, Risk-Based BSA Compliance Regime: Otting

By Valentina Pasquali

U.S. federal banking agencies are working to streamline Bank Secrecy Act requirements through an interagency task force established last month and expect results in the next three to six months, a senior regulator told lawmakers.

Comptroller of the Currency Joseph Otting said Wednesday that BSA reform is his second priority after that of simplifying certain lending rules, and said he has spent a “significant amount” of time since taking office in November thinking about how to improve a “very labor-intensive” and “paper-oriented” regime.

Regulators from the OCC, Federal Reserve, Federal Deposit Insurance Corp. and National Credit Union Administration jointly produced 14 recommendations to improve the effectiveness of BSA regulatory filings and cut compliance costs, Otting said during a hearing of the House Financial Services Committee.

Conducting examinations on a risk basis, raising the thresholds at which banks are mandated to report cash transactions and suspicious activity, providing covered entities with more feedback on their filings and using artificial intelligence to reduce the compliance burden are among the proposals under consideration.

The interagency task force submitted the proposals to the U.S. Treasury Department’s Financial Crimes Enforcement Network in early May.

“Last Friday they [FinCEN] came back to us with some edits,” Otting told lawmakers Wednesday. “We plan to use that as our control document and create a group of people that will work on BSA.”

Applying a risk-based approach to BSA examinations would eliminate unnecessary redundancies caused by the one-size-fits-all process in place today, according to the comptroller.

“If you have a management team that’s highly rated with a very strong compliance department, a very strong BSA, and a low-risk customer base, we examine that entity the same as one with weak management, weak BSA and a high-risk,” Otting told the lawmakers. “We need to bring balance.”

Technology, particularly artificial intelligence, or AI, may also enable banks to screen their records more effectively, share information with one another and track interbank transactions in a way that will yield more complete and informative reports, added the Comptroller.

Otting separately appeared to endorse certain provisions of BSA reform draft legislation pending in the committee.

Members are scheduled to hold a preliminary vote Thursday morning on the Counter Terrorism and Illicit Finance Act, which would increase the current $10,000 currency transaction threshold (CTR) to at least $30,000 and double the $5,000 value presently triggering suspicious activity reports.

Otting on Wednesday described the proposed CTR threshold as a “great step in the right direction” and a “fair place to start,” noting that out of 9 million such reports filed every year, some 20 percent to 25 percent involve “good American citizens” and “businesses” moving funds legally but still get caught in the low-dollar net.

The Comptroller did not openly support any one threshold amount for SARs but cited estimates that 15 percent to 20 percent of approximately 1 million current annual filings are defensive in nature.

“We’ve gotten banks to the point that they are so nervous that they file SARs on anything just so that no one ever can come back ” to reprimand them, Otting said. “So we need to introduce some flexibility in there.”

The push to raise the thresholds has attracted criticism from law enforcement.

James Barnacle, who heads the FBI’s money laundering unit, said at the ACAMS Risk Management Conference in New York City last week that the move would deprive federal investigators of “vital” intelligence despite the fact that financing criminal activity, including terrorism, requires smaller and smaller amounts of money.

“They [FinCEN] expressed the need for the data. If you are looking for a needle in haystack, you need the haystack,” Rep. Stephen Lynch (D-MA) told Otting at the hearing. “I’m more cautious about doing that … I’d advise you to share that caution with us.”

According to Dan Stipano, former deputy chief counsel for the OCC, Otting’s testimony shows “sensitivity” to the cost and burden for financial institutions to comply with BSA requirements that was not there in the past, and places an “important focus” on effectiveness.

However, the idea of raising CTR and SAR thresholds remains a stumbling block, particularly now that banks have automated most of the related processes and in light of law enforcement opposition.

Time is another hurdle, Stipano, now a partner with Buckley Sandler LLP in Washington, D.C., added.

“In the current legislative environment it’s hard to get any legislation through, and we are in an election year and there aren’t a lot of working days for Congress to pass the bill,” he said.

Separately, Comptroller Otting told lawmakers Wednesday that the OCC would make a formal decision in July on whether to establish a specific charter for fintech firms.

Topics : Anti-money laundering , Counterterrorist Financing
Source: U.S.: Congress , U.S.: OCC
Document Date: June 13, 2018