WASHINGTON – The Financial Crimes Enforcement Network is proposing to extend anti-money-laundering requirements to a limited number of financial institutions that are not already regulated by a federal agency.
With the plan, unveiled Thursday, Fincen said it aims "to ensure that all banks, regardless of whether they are subject to federal regulation and oversight, are required to establish and implement anti-money laundering programs."
The proposal would extend a number of AML rules – including beneficial ownership, Customer Identification Program and Bank Secrecy Act requirements – to the institutions that are neither chartered by a federal regulator nor backed by federal deposit insurance.
Numbering about 740, those companies include non-depository trust companies, non-federally insured credit unions, privately-insured banks and thrifts and "at least one" private bank, Fincen estimated.
But even for those companies, the Fincen plan is likely to have very little impact, said Phoebe Papageorgiou, a senior counsel at the American Bankers Association.
Because of already existing state rules, she said, "many of these institutions are already complying with these rules, even though not mandated by Fincen." The Conference of State Bank Supervisors estimated in a 2010 report that 40 states already impose BSA examinations on independent trust companies.
The institutions in question also already have to comply with a number of AML requirements regardless of state law. They are required to file currency transaction reports and suspicious activity reports, and cannot establish a correspondent banking relationship with a foreign shell bank.
The plan comes after Fincen published a long-awaited rule in May that required banks to identify one or several individuals with a large stake or control of a company seeking to open an account.
Under Fincen's new proposal, this beneficial ownership requirement would extend to institutions without a "federal functional" regulator too.
But for critics who say the beneficial ownership rule was riddled with loopholes, this new proposal amounts to a drop in the bucket.
"It's not clear that this is going to have much of a major impact," said Ross Delston, a Washington D.C.-based attorney and AML compliance expert, adding that hedge funds, investment advisors and private equity funds are still exempt from many of the rules that apply to banks.
"The international standard is that every financial institution needs to be covered," he said.
Fincen's proposal will be open for comment until October 24.