- Key insight: Bank regulators, led by Treasury's Financial Crimes Enforcement Network, issued a guidance document clarifying requirements around suspicious activity reports, or SARs.
- What's at stake: Banks spend considerable time and money on anti-money laundering compliance, and the guidance is meant to reduce that burden.
- Forward look: Treasury Under Secretary for Terrorism and Financial Intelligence John Hurley said the guidance will help focus SAR reports to provide law enforcement with greater value.
WASHINGTON — New guidance obtained by American Banker would reduce the number of suspicious activity reports, or SARs, banks are required to file, a move aimed at easing banks' compliance burden and making data more useful for law enforcement.
The Treasury Department, Federal Reserve, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency are releasing a new Frequently Asked Questions guidance document that is meant to cut the compliance burden for banks and other financial firms by reducing the number of SARs that they need to file.
Treasury said that the changes would refocus the system on reports that provide the greatest value to law enforcement.
"SARs should deliver better outcomes by providing law enforcement the most useful information — not by overwhelming the system with noise," said Treasury Under Secretary for Terrorism and Financial Intelligence John Hurley in a statement. "Compliance requires real resources, and that's why prioritization is crucial. At Treasury, we will continue to reform our Anti-Money Laundering and Countering the Financing of Terrorism framework to de-prioritize low-value activity and direct compliance resources towards the most significant threats to our country."
Banks are required to file SARs to the Treasury Department's Financial Crimes Enforcement Network, or Fincen, under certain circumstances, such as upon observing a known or suspected federal crime or when a customer deposits more than $10,000 in cash. Banks can also voluntarily file SARs on suspicious transactions that might be relevant to a possible violation.
Banks tend to over-file SARs relative to what is required out of concern that they could face supervisory or enforcement penalties if they are found to have inadequate anti-money laundering controls. But the reporting rules have also become central to the administration's crusade against political debanking because SARs filed against a consumer can lead to that person or group losing access to banking services. The OCC even recently warned financial institutions against using voluntary SARs as "a pretext to improperly disclose customers' financial information."
The new guidance from the banking regulators should ease some of those worries.
The FAQs don't change anti-money laundering legal or regulatory requirements, or establish new expectations, Treasury said. But the new guidance does tells banks that they do not necessarily need to file SARs for transactions or a series of transactions at or near the $10,000 currency transaction reporting, or CTR, threshold — the point at which banks must file a separate report with Fincen. Financial firms only need to file a SAR if the institution has reason to suspect that the transaction or series of transactions is designed to evade CTR.
The regulators also said that financial institutions aren't required to conduct a separate review of a customer or account after filing a SAR to see if suspicious activity has continued, and that there's no requirement for financial institutions to document the decision to not file a SAR.
The move is part of the Treasury Department's ongoing effort to simplify the BSA process, particularly around SARs.
"As everyone in this field knows, there are useful SARs and not-so-useful," Hurley said in a speech last month. "Regulatory pressure has led to more and more of the not so useful SARs. Complexity is also a major problem."
Hurley specifically called out the continuing review issue.
"Financial institutions are devoting more and more of their limited resources to manually reviewing a customer account with a prior SAR filing," he said. "That has become a significant administrative burden consuming resources without improving outcomes. We've heard you: This is not a good use of resources. It is time consuming, onerous, and does not lead to valuable reporting."
He also addressed documenting the decision to not file a SAR, and the idea that banks are spending time documenting the CTR issue when a series of transactions are made, a practice that when done to avoid the CTR report is known as "structuring."
"Every hour spent documenting a non-SAR is an hour not spent protecting Americans, and that trade-off is unacceptable," Hurley said. "Similarly, banks spending significant amounts of time and money flooding the system with structuring data on businesses they know are legitimate is a foolish waste of time. Even worse, when it leads the institution to make a business decision to de-bank these customers, it is both unfair and economically destructive."
