FinCEN’s Bad BSA Idea and Why It Matters to Your Credit Union

July 14, 2021 at 9:53 am Leave a comment

Nudged on by congress, FinCEN has announced that it is moving ahead with plans to establish a framework that would effectively allow it to provide preclearance to corporations and financial institutions subject to Bank Secrecy Act oversight. This is a lousy idea that could negatively impact your credit union, here’s why:

No-action letters are generally letters issued by regulators which review a regulated entity’s proposed actions and determine whether or not they would comply with applicable regulations. For example, the CFPB has issued no-action letters detailing how certain financial products can be offered in compliance with federal regulations. Under the anti-money laundering law passed by congress last year FinCEN was ordered to assess whether it should implement a no-action letter process in which it would state whether or not FinCEN or any relevant functional regulator intends to take enforcement action based on the specified activity. Ostensibly, this could create a streamline process for providing regulatory guidance. In fact, it would do just the opposite.

Most importantly, your credit union is subject to BSA compliance oversight not just from FinCEN but from the NCUA and in the case of New York State chartered institutions, New York State’s Department Of Financial Services. A no-action letter issued by FinCEN would have no binding effect on NCUA or, by implication, the actions of your credit union. As FinCEN notes in its report, currently there is not a single example of a no-action letter which is binding on multiple agencies. As a result, in a best case scenario, no-action letters will simply provide potential precedents to banks and credit unions seeking to take different approaches to BSA compliance.

Why is this such a bad thing, Henry? After all, doesn’t FinCEN issue interpretive letters all the time? Because a no-action letter would give a green light to the company that receives its blessing. On a practical level what this process will do is give some entities a BSA compliance advantage over others. For instance, I can already see lawyers for FinTech charters explaining why they need not comply with BSA requirements to the same extent as their brick-and-mortar counterparts.

In short, if FinCEN goes forward and starts issuing no-action letters it will create greater compliance confusion for the vast majority of regulators and regulated entities while providing a get out of jail free card for a relative handful of corporations which are most likely already going to have numerous advantages over traditional credit unions, and banks for that matter.

If congress really wants to lessen the BSA compliance burden it would have to amend the law to clarify that no-action letters are binding on all agencies that share in BSA compliance. Good luck getting that passed. Of course, congress could take an even bigger look at existing law and categorically exempt small to medium-sized financial institutions from many BSA requirements. This makes sense but I’m not holding my breath.

Entry filed under: Federal Legislation, Regulatory. Tags: , , .

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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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