Mnuchin affirms commitment to fixing AML, beneficial-owner rules

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WASHINGTON — Treasury Secretary Steven Mnuchin vowed to House lawmakers Thursday that he would push for regulators to ease anti-money-laundering requirements, among other deregulatory efforts underway.

Mnuchin, testifying before the House Financial Services Committee, acknowledged bipartisan concerns that the requirements for banks to report suspicious financial activity through the Bank Secrecy Act have become cumbersome and need streamlining.

“We are looking at BSA reform, AML reform. We need to strike the right balance on that,” said Mnuchin during the hearing.

Mnuchin particularly committed to lawmakers that he would look into easing the "beneficial ownership" rule, which took effect in May and requires banks to collect and report information on the true owner of an account — anyone who owns at least 25% or more of a legal entity. The rule is intended to make it more difficult for account holders to hide behind shell companies.

Banks have raised concerns about implementing the rule, saying it is far better for the government to track beneficial owner information since businesses are challenging banks' requests for more detailed information upon opening accounts.

Lawmakers are also looking at ways to streamline AML requirements legislatively, but the beneficial ownership requirement has been a key point of controversy. Last month, a House AML reform bill stalled because it excluded a measure to require new companies to provide that information to the Financial Crimes Enforcement Network.

“I believe that any legislative package on this issue must address the issue of beneficial ownership because anonymous shell companies are routinely used to finance criminal and terrorist organization,” said Rep. Carolyn Maloney, D-N.Y.

Mnuchin responded that “you have our commitment to continue to work on” the issue.

“I believe this issue needs to be solved, whether it’s solved as part of BSA or whether it’s solved separately,” Mnuchin said. “But we do need to be able to have access to beneficial ownership information for law enforcement and for combating terrorist financing.”

Mnuchin also said he would work with regulators in clarifying the differences between a guidance and formal rulemaking, in response to concerns that regulators have issued guidance, without seeking public comment, that they have enforced more like a rule. Mnuchin is head of the Financial Stability Oversight Council, a body of federal financial regulators that oversees systemic risk in the financial markets.

“Over the years, a large amount of agency guidance, handbooks and circulars have been issued. Almost none of it has been withdrawn or rescinded. Almost none of it went through notice and comment rulemaking or was submitted to Congress pursuant to the Congressional Review Act,” said Rep. Blaine Luetkemeyer, R-Mo. “It’s important there be a distinction” and “that you could take the lead in harmonizing all of this across all of the financial agencies.”

Mnuchin replied, “I assure you that we will address this at the next FSOC meeting” but cautioned that “I don’t think we need guidance coming out of FSOC.”

“I’ve always believed that there should be consistency across the regulators, so that is an issue that we will address with them,” he added.

Meanwhile, Mnuchin also vowed to move forward with financial regulators on modernizing the Community Reinvestment Act, a 1977 law that grades banks on lending to low- and moderate-income communities in which they operate.

The Treasury released a report in April that made recommendations to regulators on how to update CRA credits for banks. Comptroller of the Currency Joseph Otting has urged other regulators to join him on a proposal that would expand CRA credits beyond housing to certain business loans.

However, consumer advocates and Democrats have raised concerns that expanding the credits would simply make it easier for banks to get a good grade rather than injecting more funds into community development.

“I’m concerned about this, Mr. Secretary, because I have a good many constituents who believe that the CRA should be strengthened to aid more poor people,” said Rep. Al Green, D-Texas.

Mnuchin replied, “I can assure you our desire in changing CRA is not about weakening CRA in any way.”

“It’s about making it more effective for communities and making sure that the benefits go to communities,” he added.

The Treasury is also slated to release a report on fintech that Mnuchin told lawmakers would come out “shortly.”

“I’ve had an opportunity to review a draft of it and it’s just going through final review,” he said.

Mnuchin did not detail what would be in the report. But when asked if officials are looking into whether the budding fintech industry creates an uneven playing field with banks, Mnuchin said they considered how fintech both competes and works with banks.

“I would say like any legacy industry or any regulated industry there are good things that occur and developments outside in the fintech world, and there’s concerns,” he said. “And we want to strike the right balance between both of those.”

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