The New York State Department of Financial Services (“NYSDFS”) proposed rules that would further define the anti-money laundering (“AML”) compliance obligations of banks and other money service businesses, such as check cashers and money transmitters.
The rules are intended to (i) clarify the required attributes of a “transaction monitoring and filtering program” and (ii) require the chief compliance officers of regulated institutions to file annual certifications regarding compliance by their institutions. Specifically, the proposals would require a financial institution to:
- maintain a “transaction monitoring program” for potential Bank Secrecy Act / AML violations and suspicious activity reporting;
- maintain a “watch list filtering program” to interdict “transactions, before their execution, that are prohibited by applicable sanctions, including OFAC and other sanctions lists, politically exposed persons lists, and internal watch lists”; and
- submit annual certifications of compliance with the proposed requirements executed by chief compliance officers or their functional equivalents to the NYSDFS by April 15, 2016.
An acceptable “transaction monitoring program” would require:
- the identification of all data sources that contain relevant data;
- valuation to ensure accurate and complete data flows;
- governance and management oversight;
- a vendor selection process;
- adequate funding of the program;
- qualified personnel or outside consultants; and
- periodic training.
An inaccuracy in the filing would subject the signatory to criminal penalties.
The proposal follows a four-year series of NYSDFS investigations into terrorist financing and sanctions violations at financial institutions that “uncovered (among other issues) serious shortcomings in the transaction monitoring and filtering programs of these institutions” and found that a “lack of robust governance, oversight and accountability at senior levels of these institutions has contributed to these shortcomings.”
According to New York Governor Andrew M. Cuomo, “[g]lobal terrorist networks simply cannot thrive without moving significant amounts of money throughout the world. At a time of heightened global security concerns, it is especially vital that banks and regulators do everything they can to stop that flow of illicit funds.”
The proposal will be published in the New York State Register. A 45-day notice and comment period will begin on the date of publication.
Lofchie Comment: Why is the oversight of AML a matter of particular concern for state banking regulators? Wouldn’t it be better to leave the enforcement of AML requirements to federal banking regulators? It would be interesting to know how much money the state collects for AML violations.
The person who signs the NYSDFS form has a high-risk job. Never mind that it would be impossible for that person to be sure their employer had (or indeed could) comply with the strict requirements of the rule; never mind that the form does not even include a materiality standard; never mind that the required “minimum standards” are impossibly high and, ultimately, subjective. The real problem is that one accepts the job along with the underlying expectation that New York State seemingly wants to charge violations and collect big fines. For a compliance officer charged with a deficient certification, the penalties are huge (without even considering the risk of fines, jail time and public humiliation); that officer also is likely to become unemployable.
Even so, the officer probably needs the work. After all, the economy is tough.