The goal of the Proposed Rule to strengthen and modernize Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) programs is to set a foundation to provide greater clarity and consistency for financial institutions.
If you’ve had an opportunity to review the Proposed Rule you might feel like it aligns closely with your existing practices, for instance, you’ve already implemented a risk-based, and effective AML/CFT program. Thus, you might be wondering why there is so much buzz surrounding this Proposal.
First, it will bring standardization. While some financial institutions have undergone rigorous testing and received feedback from examiners, many haven’t experienced this level of scrutiny. The intent is to ensure that all institutions operate under a unified understanding of the requirements that leave little room for misinterpretation.
Second, it will formalize concepts that currently exist only in guidance and examination manuals but are not explicitly codified in the law. For instance, while the Bank Secrecy Act (BSA) mandates the presence of an AML/CFT program, it does not explicitly state that such programs must be risk-based and effective. These expectations, while in guidance and manuals, are not written into law. In other words, it will bring the law in line with current practices and as a result modernize the regulatory framework.
Once these changes are put into place, the requirements for AML/CFT programs to be “effective”, “risk-based”, and “reasonably designed”, will no longer be left to interpretation or guidance; they will become a legal standard. This ensures greater consistency across the industry. With the formalization of terms like “effective”, there are concerns about how this will be defined and interpretated.
Kevin discussed this at our inaugural AML/CFT Membership Group meeting.
Published
2025/02/11
