New York — Two comment letters filed yesterday by the Bank Policy Institute and The Clearing House Association highlight opportunities to strengthen the nation’s anti-money laundering (AML) framework, including support for a recent regulatory proposal to make bank AML programs more risk-based and recommendations to address meaningful gaps in AML oversight of digital asset markets.

The first comment letter focuses on a recent regulatory proposal that would allow banks’ anti-money laundering (AML) programs to focus their resources on the most urgent threats. “As the agencies recognize, banks know their customers and their risk profiles better than regulators and the government,” the associations stated upon filing the letter. “This proposal sensibly seeks to give banks more discretion in how they design and implement their AML programs, enabling them to focus on high-risk customers and typologies. This welcome flexibility reinforces a risk-based framework that is more effective, operationally practical and useful to law enforcement and national security in fighting illicit finance."

Context

Treasury’s FinCEN along with the Office of the Comptroller of the Currency (OCC), Federal Deposit Insurance Corporation (FDIC) and National Credit Union Administration (NCUA) proposed the Program Rule in April, fulfilling a requirement of the Anti-Money Laundering Act of 2020 (AMLA), a comprehensive reform law. AMLA directed the agencies to issue a rule to reform the requirements for banks’ AML and countering the financing of terrorism (CFT) programs under the Bank Secrecy Act. The proposed rule aims to transition banks from check-the-box compliance exercises to a regime allowing banks to focus their resources on the highest-risk matters.

More Flexible, Less Prescriptive

The proposed rule affords banks meaningful discretion in the risk-based design and implementation of their AML/CFT programs, replacing a current one-size-fits-all, box-checking approach that emphasizes process over substance. This shift recognizes that banks are uniquely positioned to understand their own risk profiles, including the nuances of their customer base, products, services, geographic exposure and controls. The proposal shifts examiners’ focus to whether a bank’s program is reasonably designed and appropriately calibrated to its specific risks. It also enhances the role of the Treasury Department and FinCEN, which were entrusted by Congress with overall responsibility for this effort, in the examination process. This framework allows the actual effectiveness of a bank’s program to be the main driver of its ratings, rather than technical compliance with procedural mandates.

Recommendations

While the proposal marks a constructive step toward realigning AML programs with a more pragmatic risk-based approach, the following changes would enhance the effectiveness of AML oversight:

1. The final rule should explicitly confirm that regulators should defer to banks’ reasonable, risk-based judgments and clarify that banks may allocate resources toward higher-risk customers and activities and away from lower-risk customers and activities, including by reducing overall resource expenditures;
2. FinCEN should clarify the meaning of effectiveness within the framework approach to promote consistent application of the proposed rules and to achieve a modified framework that appropriately focuses on the AMLA’s purpose of promoting better law enforcement and national security outcomes;
3. The final rule should clearly define risk assessment processes and clarify that banks will be afforded flexibility to update and maintain their risk assessment processes;
4. The final rule should incorporate more detailed language explicitly endorsing and encouraging banks to adopt and implement technological advances, clarify what constitutes “responsible” innovation, recognize appropriate use of technology as evidence of program effectiveness and provide a more tailored and risk-based approach to the application of model risk management expectations in the AML/CFT context;
5. The final rule should include more transparency, structured feedback and protective controls to support an effective FinCEN consultation process;
6. The proposal is an important step toward modernizing the BSA regime, but it must be accompanied by broader, complementary reforms—particularly to outdated suspicious activity report (SAR) and currency transaction report (CTR) reporting frameworks, which have been shaped by piecemeal guidance rather than comprehensive rulemaking, despite Congress’s clear intent in AMLA to drive more holistic modernization.

In the second joint comment letter, filed yesterday, BPI and The Clearing House emphasized the meaningful gaps in AML/CFT obligations in the secondary market for payment stablecoins and other digital assets. Even though most illicit activity occurs in the secondary market, current regulatory requirements fail to impose sufficient AML obligations on secondary-market actors such as decentralized finance (DeFi) firms, certain digital asset custodians and exchanges, the letter says. Crypto illicit-finance risks make effective AML oversight in the secondary market critical.

About The Clearing House

The Clearing House Association L.L.C., the country’s oldest banking trade association, is a nonpartisan organization that provides informed advocacy and thought leadership on critical payments-related issues. Its sister company, The Clearing House Payments Company L.L.C., owns and operates core payments system infrastructure in the U.S., clearing and settling more than $2 trillion each day.

About Bank Policy Institute

The Bank Policy Institute is a nonpartisan public policy, research and advocacy group that represents universal banks, regional banks and the major foreign banks doing business in the United States. The Institute produces academic research and analysis on regulatory and monetary policy topics, analyzes and comments on proposed regulations, and represents the financial services industry with respect to cybersecurity, fraud and other information security issues.

 

Media Contacts:

Greg MacSweeney
The Clearing House
212-612-9282
Gregory.MacSweeney@theclearinghouse.org

Sam Fabens
Bank Policy Institute
sam.fabens@bpi.com