Banks hoping for relief from Bank Secrecy Act oversight under the Trump administration might be disappointed.
Donald Trump’s election as the next president has created some expectation for relaxed regulation in several areas. But some industry observers believe oversight of BSA and anti-money-laundering compliance is unlikely to let up.
A rising number of banks of varying sizes are dealing with orders forcing them to add staff and improve systems tied to BSA and AML issues. M&T Bank, Fulton Financial, U.S. Bancorp and East West Bancorp have spent a combined 3,170 days — and counting — operating under some form of BSA/AML order.
Those mandates are driving up expenses for banks that have been flagged, while limiting how those institutions can expand via branch openings and bank acquisitions.
A heightened focus on BSA/AML compliance “is unlikely to abate,” Christopher McGratty, an analyst at Keefe, Bruyette & Woods, wrote in a recent note to clients. Any easing, he wrote, would “be modest.”
While rolling back portions of the Dodd-Frank Act could be viewed as a form of regulatory relief, enforcing BSA and AML often is associated with issues such as terrorism and drug trafficking that President-elect Trump has vowed to confront head on.
“The big question … is whether they will view bank secrecy and anti-money laundering as a regulatory burden, or whether they will view it as a national security and law enforcement issue,” said Ross Delston, a Washington lawyer who focuses on AML issues.
“Because of the makeup of the president-elect’s proposed cabinet … a lot of folks think the administration will come down on the national security/law enforcement side,” Delston said, adding that such an approach seems reasonable.
Bankers are clearly frustrated that so much attention is being placed on BSA enforcement. Only a fifth of bankers recently surveyed by KBW expressed a belief that the rules and procedures are clearly explained.
Regulators’ focus on BSA/AML has “taken a life of its own,” said Ted Peters, a former bank CEO who now runs Bluestone Financial Institutions Group, a hedge fund that invests in community banks. “For some reason, they’ve just got a bee in their bonnet about this thing.”
Peters said he believes regulators feel the need “to do something” because credit quality is holding up. Most banks fail because of poor loan quality, he said, adding that issues such as interest rate risk and cybersecurity should be higher priorities.
Representatives for the Federal Reserve, Office of the Comptroller of the Currency and Federal Deposit Insurance Corp. declined to comment.
There is a need to keep an eye out for illegal customer behavior, said Jim Dowling, a managing director of Dowling Advisory Group in Pasadena, Calif., adding that it seems unlikely that BSA/AML oversight will be eased in the foreseeable future.
“I don’t think anyone is going to [discontinue] … efforts in the area of preventing money laundering and funding of terrorism,” Dowling said.