Alert May 25, 2010

FinCEN Director Discusses Impact of Regulatory Reform on Anti-Money Laundering

Speaking at the Institute of International Bankers’ International Banking Anti-Money Laundering (“AML”) seminar, FinCEN Director James Freis discussed the impact of financial regulatory reform on the regulatory framework for AML and counter-terrorist financing (“CFT”).  In his remarks, Freis acknowledged that AML/CFT regulation has not received close attention in the regulatory reform debate, but noted that reform will nonetheless have indirect effects on AML/CFT, making it necessary for FinCEN to take into account the impact of regulatory changes on financial institutions and their regulators.

Freis framed his remarks by stating that, like any regulator, FinCEN must understand its “line of business,” which in FinCEN’s case includes (1) alignment of specific AML/CFT requirements with the operating obligations of financial sector participants, (2) involvement and integration with safety and soundness regulation more broadly, and (3) detection and prevention of money laundering and terrorist financing.  Freis explained that FinCEN’s main regulatory tool is to impose basic standards of behavior, minimum standards of knowledge, and consistent standards of transparency.

Looking forward, Freis predicted that, unlike other areas of financial regulation which will be directly impacted by regulatory reform, the changes in AML/CFT regulation are more likely to be in the nature of evolution, maturation and integration, with a focus on effective implementation.  Freis also explained that he believes there will be continued focus on AML/CFT issues because combating abuses of financial crime is a part of promoting financial stability.  In addition, Freis noted that AML/CFT obligations are consistent with the main principles outlined by the G-20 countries regarding potential changes in regulation of the financial services industry:  Strengthening Transparency and Accountability, Enhancing Sound Regulation, Promoting Integrity in Financial Markets, Reinforcing International Cooperation, and Reforming International Financial Institutions.

Focusing on the practical by financial institutions implications of regulatory reform, Freis outlined the business case for continued investment by financial institutions in AML/CFT compliance during periods of financial stress.  Freis explained, for example, that a 2009 survey by the American Bankers Association showed $788 million in fraud related losses on payment cards in 2008, and more than $1 billion under the umbrella of check fraud during the same period.  In light of such statistics, Freis highlighted his continued support for close integration of AML/CFT compliance with longstanding efforts to prevent fraud and other losses, explaining that a complete and correct risk assessment, customer identification program, and transaction monitoring process can pay for itself through the prevention and detection of fraud committed against the institution, the prevention and detection of identity theft and corporate account hijacking, the accurate evaluation and pricing of new products and services, the discovery of market products not properly served, and compliance with non-AML/CFT regulations, such as consumer protection rules.