In an effort to increase the efficiency and effectiveness of its regulatory oversight, the Financial Crimes Enforcement Network (FinCEN) has transferred and reorganized its regulations from 31 CFR Part 103 to 31 CFR Chapter X. The transfer, which allows the regulations to be readily identifiable “as being specific to a particular regulated industry or as being generally applicable to all regulated industries or covered persons,” will be effective as of March 1, 2011. It should be noted that there have been no substantive changes made to the underlying regulations as a result of this transfer and reorganization. In this article, we provide FinCEN’s guidance on how to begin addressing the changes, as well as our perspective and interpretation on what institutions can expect from Chapter X.
FinCEN states that by “making the regulatory obligations clearer in their structure and more readily accessible to regulated institutions facilitates compliance and thereby advances the purposes of the Bank Secrecy Act (BSA) to protect the financial system from criminal abuse. Additionally, the transfer of FinCEN's regulations allows for better integration with the government-wide eRulemaking program.”
As a means of clarifying the consistency of the underlying regulatory requirements, FinCEN provides an Answers to Frequently Asked Questions About 31 CFR Chapter X document which includes specific recommendations as well as a 31 CFR Chapter X General Cross-reference Index that can be found in the following links as an approach to the re-organization process: http://www.fincen.gov/statutes_regs/ChapterX/html/ChapterXFAQ.html and http://www.fincen.gov/statutes_regs/ChapterX/pdf/ChapterX.pdf
In discussing the upcoming changes with ICS Compliance Director, Jim Wistman, he provided the following insights on the precedent history, premise, and financial institution challenges in adjusting to the reorganization of the applicable regulations:
“Overall, ICS Compliance believes the industry should support and applaud this effort by the regulatory authorities as many industry professionals had come to see the laws as a labyrinth. In announcing the arrival of Chapter X, the opening language of the Code of Federal Regulation includes an acknowledgement that the word “account” means several different things in the context of AML laws and regulations. This acknowledgement alone is very helpful, as financial institutions often seek to use one definition of that term, and then struggle to explain their approach to various sets of field examiners. The government is clearly acknowledging that defining key terms is not as simple as we all might like.”
Jim continues, “Many of us have witnessed this sort of rule re-mapping before; for example, FINRA provided the industry with a fairly comprehensive new roadmap with rule reference numbers to replace the old NASD and NYSE rules with new rules minted by FINRA. Many firms are still, gradually, replacing the old NASD with the new FINRA references as their Policies come up for review and renewal.
This is not a big deal in substance; however, this will create an internal policy and procedural mapping exercise which can be greatly affected by the size and risk management program structure within the institution. It will take some time for everyone simply to adjust to the new parlance. In recent years, many financial institutions have, in response to feedback from field examiners, added specificity to their Policies (and to procedures and even to New Customer forms, etc.) to make it faster for the field examiners to confirm the “environment of internal controls” is truly comprehensive. This “mapping” to avoid gaps between the bank’s Policies and the applicable laws and regulations does expedite field examinations. Now, those specific references may well need to be revised so they map to the new Chapter X. Fortunately, FinCEN does provide a grid, such that the one-time task, while difficult and time-consuming, does seem feasible. Financial institutions will need to decide whether to “get it over with,” or to “take it piece by piece” as policies come up for renewal. Also, the Examiners will need to re-map their own examination manuals and Entry Letters, so there could be some miscommunication for some period of time between regulatory authorities and the regulated entities.”
ICS Compliance welcomes comments from financial institutions as they wade into this re-mapping process. We will be compiling a “lessons learned” observations and guidance document and we will be sharing our findings (anonymously) with all interested parties. Please direct your comments to either of the authors below:
By: Aaron Kahler, CFE, CAMS
Assistant Director, ICS Compliance
akahler@ICScompliance.com
By: James H. Wistman, MBA
Director, ICS Compliance
jwistman@ICScompliance.com
