What do you need to know and how should you prepare?
On Thursday, February 11, 2021, The New York ACAMS Chapter hosted an event titled The Anti-Money Laundering Act of 2020 – What do you need to know and how should you prepare? sponsored by Exiger. The event was moderated by Kelly Cooper (Senior Vice President, Citi, and ACAMS New York Chapter Board Member) and included the following panelists: Kimberly Lacey (Chief AML Officer, KeyBank); John Melican (Managing Director and Global Head of Financial Crime Compliance , Exiger); David Sewell (Counsel, Debevoise & Plimpton) and J.T. Baker (Vice President. Goldman Sachs).
Comprehensive material pertaining to the topics addressed during the event (including links to the legislation, and client alerts from Exiger) can be accessed here.
The discussion began with an overview of the significance of the AML Act, including the paradigm shift that it introduces for financial institutions and government agencies to focus on addressing national priorities rather than regulatory compliance processes. The majority of the event, however, was concentrated on the critical areas of the legislation that will have an operational impact on financial institutions (once the relevant regulations are promulgated).
The panelists provided a great deal of information on the implications of national beneficial ownership requirements, which will be implemented in the US for the first time as a result of the AML Act. Perhaps the most important component of these requirements for financial institutions will be the revision of the CDD Rule (at this time, we do not know exactly how the CDD Rule will be revised). Another key area of focus included a provision of the AML Act that calls for future regulations to define the standards by which technology will need to be tested. There are concerns that these requirements could actually have a detrimental impact on innovation (similar to the way in which the application of model risk management guidance has deterred the adoption of new technology).
Panelists also noted that the legislation calls for increased information sharing, including the ability for financial institutions to share data with foreign branches, subsidiaries and affiliates. Additionally, the discussion included the fact that the legislation expands the US Government’s authority to subpoena the records of foreign financial institutions that maintain US correspondent banking accounts, which could ultimately impact the willingness of foreign banks to leverage the US financial system.
The following key takeaways were provided by the panelists:
The immediate impacts of the AML Act are limited given the numerous rulemakings that are required over the coming 18-24 months to implement its provisions. Financial institutions should remain vigilant as the rulemaking processes unfold. Additionally, because the scope and implementation of the statute falls largely to the administrative agencies, Biden administration appointees will have significant discretion. Designees for vital roles at Treasury and elsewhere have yet to be announced.
It is exciting to see focus on enhancing the efficiency and effectiveness of the current regime. However, we don’t currently know the degree to which the legislation will provide relief to banks. It will take time for all of the various initiatives outlined in the new legislation to bear fruit – do not expect to see massive change or relief tomorrow. As it specifically relates to beneficial ownership, the United States has lagged in its efforts to ensure corporate transparency. Placing the onus on the banks through the CDD Rule created a tremendous burden on our banking industry, but did not adequately address the root cause of the problem. The new legislation is, once again, a step in the right direction, but the degree to which it in actuality provides operational relief to banks will depend on both the revisions to the CDD Rule and regulatory expectations.
The AML Act is certainly a step in the right direction and the intent appears to focus on some of the key elements that will help financial institutions continue to improve their AML programs to prevent money laundering and countering the financing of terrorism, including promoting evolution, focusing on efficiency and effectiveness and ensuring transparency where appropriate. Nevertheless, it will be imperative that agencies and regulatory bodies focus on clarity and specificity in implementing many aspects of the statute.
It is important to inform senior management and business contacts now of more immediate impacts of the AML Act (such as the Expanded subpoena powers, information sharing, enhanced penalties, and technology testing) in order to assess the potential impacts to customers, systems and costs. The Compliance department should consider having a formal tracking for regulatory developments so that there are no surprises to the institution as the many regulations are promulgated over the next year or so in relation to the AML Act.