The Federal Reserve Board and the Financial Crimes Enforcement Network (FinCEN) (the Agencies) jointly issued a notice of proposed rulemaking (NPR). The October 23, 2020 proposed amendments, if passed, would modify two rules that have been part of the Bank Secrecy Act (BSA) regulations since 1995.
The first rule in the NPR is the Recordkeeping Rule, which requires financial institutions to collect and retain information on certain funds transfers and transmittals. The rule was created to assist law enforcement and regulatory agencies in detecting, investigating, and prosecuting financial crimes. The current threshold for covered cross border transactions is $3,000 and the proposed rule would reduce the threshold to $250.
The second rule in the NPR is the Travel Rule, which requires financial institutions to transmit to other payment chain financial institutions information on funds transfers and transmittals that begin or end outside the U.S. The current threshold for this rule is also $3,000 and the proposal would lower the threshold to $250.
The NPR would also include convertible virtual currency (CVC) and digital assets used for legal tender with the intent to clarify the meaning of “money” as used in these same rules. Virtual currency is here to stay, so if your financial institution does not have investigative knowledge in this area, 2021 will be the time to get up to speed.
When deciding upon the new lower proposed threshold to both rules, the Agencies considered the usefulness of transaction information associated with smaller transaction amounts in criminal, tax, or regulatory investigations, and in intelligence activities to protect against international terrorism. Additionally, the Agencies determined that the current thresholds may no longer be sufficient in understanding these transactions and recipients. They argue that many lower transactions are already being captured during suspicious activity investigations and that the cost to retain data has decreased. There is belief that the burden of requiring information collection and retention for these transactions in not significant.
While the initial response from many financial institutions is that this lowered amount is unreasonably low, others understand that some of the most horrific financial crimes are funded with very small transaction amounts, many of which cross borders. Regardless of where your financial institution stands on the proposed changes, consider the impact on your procedures and processes if passed in 2021.
