- Key insight: The Federal Reserve proposal would set a higher threshold for supervisors looking to cite banks for their Bank Secrecy Act/anti-money laundering deficiencies. Failures must be "significant or systemic" for an enforcement action to be taken.
- Expert quote: "I am concerned that the 'significant or systemic' standard may have unknown effects on the Board's ability to effectively substantiate that a supervised institution establishes and maintains AML and [Countering the Finance of Terrorism] programs in compliance with the rule. I believe it is critical that the Federal Reserve maintain a strong AML/CFT supervisory program." — Federal Reserve Gov. Michael Barr
- Forward Look: The proposal aligns with the Fed's increased focus on material financial risks under Vice Chair for Supervision Michelle Bowman.
The Federal Reserve Board is considering changes to its anti-money laundering policy that would see banks tailor their compliance around risks. It also pledged to shift its enforcement from "isolated" deficiencies by banks to "systemic" shortcomings.
In a proposal issued for public comment on Tuesday afternoon, the Fed outlined a host of changes intended to modernize its Bank Secrecy Act/anti-money laundering compliance standards and synchronize them with
The Fed Board of Governors voted 6-1 to issue the proposal.
Under the proposed framework, the Fed would direct banks to take a "risk-based" approach to their compliance programs, one that dedicates more resources to higher-risk customers and activities.
The proposal also calls for a higher standard for BSA/AML-related enforcement actions. It notes that banks can only be cited for "significant or systemic failures" in implementing their compliance programs, rather than "isolated, technical, or immaterial" issues.
The proposal notes that the changed standard for supervisory enforcement will not apply to implementation deficiencies, but rather will only impact how banks are treated once they have a program in place.
"The proposed rule would not limit enforcement or supervisory actions for failures to establish an AML/[countering the financing of terrorism] program," the proposal reads. "However, once a Board-supervised bank has properly established an AML/CFT program, the proposed rule would raise the threshold for significant supervisory or enforcement actions based solely on implementation deficiencies."
The move aligns with the
Fed Gov. Michael Barr was the sole dissenting vote on the proposal. In a statement, he said he could not support the proposal because it introduced a "new, undefined standard" for issuing citations — known as matters requiring attention — or formal enforcement actions.
"I am concerned that the 'significant or systemic' standard may have unknown effects on the Board's ability to effectively substantiate that a supervised institution establishes and maintains AML and CFT programs in compliance with the rule," Barr said. "I believe it is critical that the Federal Reserve maintain a strong AML/CFT supervisory program."
Barr served as vice chair of supervision directly before Bowman took the reins last year. He was appointed by then-President Joe Biden in the spring of 2022 and
The proposal will be open to public comment for 60 days.
