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AML/CFT

Federal Banking Agencies Grant CIP Relief for Certain Lending Relationships

Terri Luttrell, CAMS-Audit, CFCS
October 19, 2018
Read Time: 0 min

Do financial institution request letters to supervisory agencies actually make a difference in regulatory change? They do. On September 27, 2018, Federal Banking Agencies (FBAs) responded positively to institution request letters by granting an order for Customer Identification Program (CIP) exception for premium finance loans.

Let’s start by defining premium finance loans so that no CIP omissions are made. Premium finance loans are extended by banks (and their subsidiaries) to commercial customers to provide short-term financing to facilitate purchases of property and casualty insurance policies. Quite a mouthful, so we will continue with the term premium finance loans.

Although the agencies most likely knew that there were issues with gathering CIP on these types of commercial customers, this exception gained momentum in 2016 when a consortium of banks submitted request letters for this CIP relief. The request letters represented that premium finance loans present a low risk of money laundering because:

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(1) The loan proceeds are remitted to the insurance company (either directly or through an agent/broker) rather than the insured party,

(2) Property and casualty insurance policies have no investment value, and

(3) Borrowers cannot use these accounts to purchase other merchandise, deposit or withdraw cash, write checks or transfer funds.

It turns out that FinCEN agrees. They stated these types of loans present a low risk of money laundering because of the purpose for which the loans are extended and limitations on the ability of a customer to use such funds for any other purpose.

Even though it took two years from the time of the first request letters, the FBAs also agreed. The agencies stated that this exemption is consistent with the purposes of the BSA based on FinCEN’s assessment that premium finance loans are low risk for money laundering or the otherwise illicit use of funds.

Having the voice of all financial institutions continues to be an important part of the regulatory process and it does make a difference. Please continue to give input during regulatory comment periods and submit request letters when warranted. We are in this for the true purpose of the BSA and to spend our valuable AML resources wisely.

To review the full order click here.

About the Author

Terri Luttrell, CAMS-Audit, CFCS

Compliance and Engagement Director
Terri Luttrell is a seasoned AML professional and former director and AML/OFAC officer with over 20 years in the banking industry, working both in medium and large community and commercial banks ranging from $2 billion to $330 billion in asset size.

Full Bio

About Abrigo

Abrigo enables U.S. financial institutions to support their communities through technology that fights financial crime, grows loans and deposits, and optimizes risk. Abrigo's platform centralizes the institution's data, creates a digital user experience, ensures compliance, and delivers efficiency for scale and profitable growth.

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