Much-anticipated and long-delayed rules governing how banks verify the identity of their customers will be proposed early next year, a Federal Reserve Board official said Wednesday.
Richard A. Small, the Fed's anti-money laundering expert, asked anxious bankers to be patient and tried to justify the agency's slowness in finishing the anti-money-laundering plan.
"There are a lot of competing interests for getting this kind of regulation done," Mr. Small said at a two-day conference on money- laundering enforcement sponsored by the American Bankers Association and the American Bar Association.
Chief among the Fed concerns are the competitive and financial impacts of making banks take specific steps to verify the identities of their customers, he said.
The Fed plans to finish its draft by the end of December and then consult with other federal banking regulators so that the agencies can make a joint proposal, Mr. Small said. The industry has been waiting for these rules since May 1996.
John J. Byrne, senior ABA counsel, said bankers are glad the regulators are developing consistent rules. "It is clear there is going to be a unified, governmentwide effort to do the regulation and that's the cause for delay," he said.
Mr. Small also pledged Wednesday that the Fed will lobby other agencies and Congress to impose similar rules on broker-dealers and other nonbank financial companies. "Know your customer should not be a bank-only requirement," Mr. Byrne said.
Mr. Small reassured the industry that the proposed rules will not be burdensome and should resemble practices already adopted voluntarily by many banks. "I really honestly believe you all do this already," he said.
The proposal will closely reflect guidelines issued by the Fed in July, Mr. Small said. Banks will have to identify the ultimate beneficiaries of transactions, and will be required to keep documentation on offshore accounts until requested by the government, he said.
According to a General Accounting Office report released Wednesday, law enforcement officials are concerned that the confidentiality afforded private banking customers offers a haven for criminals.
However, the report said eight of 11 institutions examined had programs in place to detect money laundering by private banking customers. These banks told GAO they want regulators to adopt consistent know-your-customer rules.
The know-your-customer rules should not interfere with Internet banking, Mr. Small added, because other methods exists to verify identities besides face-to-face meetings.
