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Cmte Financial Services (R)
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Financial Institutions Detail Challenges Associated with New FinCEN Regulation

Washington, Apr 27 -

The Financial Institutions and Consumer Credit Subcommittee held a hearing today to review the implementation of the Financial Criminal Enforcement Network’s (FinCEN) Customer Due Diligence (CDD) Rule from the point of view of financial institutions.

“As a former banker and bank regulator, I understand the need for financial institutions to better know their customers and better identify beneficial owners,” said Subcommittee Chairman Blaine Luetkemeyer (R-MO). “We must remember that due to delayed guidance and the call for significant changes, financial institutions will undoubtedly face compliance issues with FinCEN’s customer due diligence rule. Delayed implementation and enforcement of this important rule is the most responsible way to ensure that financial institutions are able to comply.”

Key Takeaways

• The FinCEN CDD Rule implements the “fifth pillar” of the Bank Secrecy Act (BSA) compliance.

• Adding another layer of compliance without clear and exact guidance on implementation could lead to issues for financial institutions and their customers.

Topline Quotes from Witnesses

“First, compliance with the CDD Rule is very expensive and burdensome. … Second, the CDD rule has many gray areas that are difficult to implement. … Third, the rule puts a burden on banks to ensure the information the customer provides is accurate, but banks are not given either the tools or the guidance they need to make that determination. … Fourth, while FinCEN has provided some guidance to banks in the form of FAQs, the FAQs in some cases are not clear, and in other cases the FAQs create an even greater burden on banks and, ultimately, bank customers.” – Dalia Martinez, Executive Vice President, International Bank of Commerce, on behalf of the Mid-Size Bank Coalition

“TCH recognizes the importance of robust CDD processes and agrees with FinCEN’s stated position that “[e]xpressly stating the [cdd] requirements facilitates the goal that financial institutions, regulators, and law enforcement all operate under the same set of clearly articulated principles.”6 However, we do have two concerns with the CDD rule: first, the rule requires financial institutions to identify beneficial owners on a per-account basis and not a per-customer basis; and second, its preamble does not explicitly affirm FinCEN’s sole ultimate authority to determine CDD standards, and rather appears to leave the door open for further ad hoc interpretations by examiners.7 Additional guidance released by FinCEN earlier this month has exacerbated these concerns..” – Greg Baer, President, The Clearing House Association

“The CDD Rule will provide important new information useful to law enforcement in the detection and prevention of money laundering, terrorism financing, and other financial crime. FinCEN deserves credit for formalizing and setting boundaries to practices that previously had existed only in interpretive guidance. The promulgation of the rule, which has been ten years in the making, and FinCEN’s recent, extensive guidance interpreting the rule (in the form of 37 frequently asked questions or “FAQs”), represent an enormous labor and expenditure intellectual effort by the agency, and a substantial achievement. … The banks and other financial institutions covered by the rule likewise have expended extraordinary effort to inform FinCEN’s approach to the rule and to re-organize processes across their enterprises to implement its requirements. Over my last two years in private practice, I have seen the never-ending hard work and professionalism that these institutions apply to understanding and complying with their obligations under the Bank Secrecy Act (“BSA”).” – Carlton Greene, Partner, Crowell & Morning LLP