Alert December 11, 2012

FinCEN Seeks Comment on Proposal to Amend the Definitions of “Funds Transfer” and “Transmittal of Funds”

FinCEN issued a notice of proposed rulemaking to amend the definitions of “funds transfer” and “transmittal of funds” under the regulations implementing the Bank Secrecy Act, in light of recent amendments to the Electronic Fund Transfer Act and its implementing regulation, Regulation E. Under the current BSA regulations, namely the Recordkeeping and Travel Rules which impose certain recordkeeping and reporting requirements on funds transfers and transmittal of funds of $3,000 or more, transactions governed by the EFTA are excluded from the definitions of “transmittal of funds” and “funds transfer.” When the BSA regulations were initially implemented, the exclusion of EFTA-covered transactions worked because the EFTA only covered certain electronic funds transfers, and the BSA and EFTA had different goals—recordkeeping and reporting, and consumer protection, respectively.

The Dodd-Frank Act amended the EFTA to include consumer protections for remittance transfers, which are broadly defined to include transactions that typically were governed by the BSA.  Thus, under the current regulatory framework, these transactions would no longer be subject to the Recordkeeping and Travel Rules’ requirements.  Accordingly, FinCEN’s proposed rule seeks to modify the definitions of “funds transfers” and “transmittal of funds” to exclude electronic fund transfers as defined in Section 903(a)(7) of the EFTA.  The proposed change would allow remittance transfers that do not meet the definition of electronic fund transfer to remain in the regulatory domain of the BSA.

At issue is the effect recent amendments to the EFTA will have the transactions historically governed by the BSA.  Specifically, the Dodd-Frank Act amended the EFTA to include a broad definition of “remittance transfers,” such that certain transactions, such as international funds transfers sent by consumers through banks and cash-based or account-based transmittal of funds sent by consumers through money transmitters will no longer be considered “funds transfer” and “transmittal of funds” under the BSA.  Comments on the proposed rule must be received by January 25, 2013.