FDIC Proposed Rule: Exemptions to Suspicious Activity Report Requirements

WASHINGTON, Jan. 23 -- The Federal Deposit Insurance Corporation has issued a proposed rule (12 CFR Part 353), published in the Federal Register on Jan. 22, entitled: "Exemptions to Suspicious Activity Report Requirements".

The proposed rule was issued by James P. Sheesley, Assistant Executive Secretary.

DATES: Comments are due on or before February 22, 2021. Comments on the Paperwork Reduction Act burden estimates are due on or before March 23, 2021.

ADDRESSES:

You may submit comments, identified by RIN 3064-AF56, by any of the following methods:

* FDIC Website: https://www.fdic.gov/regulations/laws/federal/. Follow instructions for submitting comments on the agency website.

* FDIC Email: [email protected]. Include RIN 3064-AF56 on the subject line of the message.

* Mail: Robert E. Feldman, Executive Secretary, Attention: Comments, Federal Deposit Insurance Corporation, 550 17th Street NW, Washington, DC 20429.

* Hand Delivery/Courier: Comments may be hand-delivered to the guard station at the rear of the 550 17th Street building (located on F Street) on business days between 7 a.m. and 5 p.m.

Please include your name, affiliation, address, email address, and telephone number(s) in your comment. All statements received, including attachments and other supporting materials, are part of the public record and are subject to public disclosure. You should submit only information that you wish to make publicly available.

Please note: All comments received will be posted generally without change to http://www.fdic.gov/regulations/laws/federal, including any personal information provided.

FOR FURTHER INFORMATION CONTACT: Lisa Arquette, Associate Director, (202) 898-8633, [email protected], Division of Risk Management Supervision; John Dorsey, Acting Supervisory Counsel, (202) 898-3807, [email protected], Legal Division; or Constantine Lizas, Counsel, (202) 898-6925, [email protected], Legal Division.

* * *

The FDIC is inviting comment on a proposed rule that would modify the requirements for FDIC-supervised institutions to file Suspicious Activity Reports (SARs).

The proposed rule would amend the FDIC's SAR regulation to allow the FDIC to issue exemptions from the SAR requirements.

The proposed rule would make it possible for the FDIC to grant relief to FDIC-supervised institutions that develop innovative solutions to meet Bank Secrecy Act (BSA) requirements more efficiently and effectively.

SUPPLEMENTARY INFORMATION:

I. Policy Objectives

The policy objective of the proposed rule is to allow the FDIC to grant SAR filing exemptions, in conjunction with the Financial Crimes Enforcement Network of the Department of the Treasury (FinCEN), to FDIC-supervised institutions that develop innovative solutions to meet BSA requirements more efficiently and effectively. The FDIC is proposing this rule as a proactive measure to address the likelihood that FDIC-supervised institutions will leverage existing or future technologies to report information concerning suspicious activity in a different manner or time frame or to share SAR-related information. This change would more closely align the FDIC's regulation with FinCEN's regulation. FinCEN, unlike the FDIC, has broad statutory authority to issue exemptions from the SAR filing requirements. Because the FDIC's SAR regulations do not currently contain any provision by which the FDIC can issue case-by-case exemptions, a situation could arise in which FinCEN grants an exemption from the SAR filing requirements to an FDIC-supervised institution, but the institution would still need to file a SAR if the circumstance fell within the FDIC's SAR rule. The proposed rule would allow the FDIC to grant exemptions from SAR filing requirements in conjunction with FinCEN to reduce potential regulatory burden when a request involves the SAR filing requirements of both FinCEN and the FDIC.

II. Background

The FDIC has long required its supervised institutions to report potential violations of law arising from transactions that flow through those institutions. From 1986 to 1996, FDIC-supervised institutions filed criminal referral forms with the FDIC, Federal Bureau of Investigation, and the local U.S. Attorney's office.[1] The FDIC required reporting through criminal referral forms to facilitate the reporting of potential violations to law enforcement.

In 1992, Congress passed the Annunzio-Wylie Anti-Money Laundering Act, which redesigned the criminal referral process applicable to FDIC-supervised institutions and made the reporting of certain suspicious transactions a requirement of the BSA.[2] The Annunzio-Wylie Anti-Money Laundering Act permitted the Department of the Treasury to require financial institutions, including FDIC-supervised institutions, to "report any suspicious transaction relevant to a possible violation of law or regulation."[3] Thereafter, the Department of the Treasury, in consultation with the FDIC, the other federal banking agencies, and law enforcement, developed the modern SAR form and reporting process, which standardized the reporting forms and created a centralized database that could be accessed by multiple law enforcement and regulatory agencies.

To implement this new reporting system, FinCEN implemented its SAR regulation in 1996[4] for financial institutions subject to BSA requirements to address, among other things, the reporting of money laundering transactions and transactions designed to evade the reporting requirements of the BSA.[5] To further implement this new reporting process and reduce unnecessary reporting burdens, the FDIC and the other federal banking agencies contemporaneously amended their criminal referral form regulations to incorporate the new SAR form and reporting database, align their regulatory reporting requirements with FinCEN's reporting requirements, and further refine the reporting processes.[6]

As a result of this redesign and FinCEN's implementing regulation, FDIC-supervised institutions are currently required under both FDIC and FinCEN regulations to file SARs. These regulations are not identical but are substantially similar. Both SAR regulations require, among other things, FDIC-supervised institutions to file SARs relating to money laundering and transactions that are designed to evade the reporting requirements of the BSA, as well as maintain the confidentiality of a SAR in most circumstances.[7] However, the FDIC's SAR regulation covers a slightly broader range of transactions, for example, by requiring SARs to be filed for any known or suspected instance of insider abuse in any amount, and further requiring the prompt notification to the institution's board of directors when a SAR has been filed.

FinCEN has general authority to grant exemptions from the BSA's requirements, which includes granting exemptions under its SAR reporting regulation.[8] FinCEN's regulation provides that "[t]he Secretary [of Treasury], in his sole discretion, may by written order or authorization make exceptions to or grant exemptions from the requirements of [the BSA]. Such exceptions or exemptions may be conditional or unconditional, may apply to particular persons or to classes of persons, and may apply to transactions or classes of transactions." The Secretary of Treasury delegated this exemption authority to FinCEN. In contrast, the FDIC's SAR regulations contain a discrete set of filing exemptions pertaining to physical crimes (robberies and burglaries), and lost, missing, counterfeit, or stolen securities.

This disparity in exemptions makes it more difficult for the FDIC to grant relief if an FDIC-supervised institution has a novel SAR filing proposal that does not squarely fit within the FDIC's regulatory requirements, but would nonetheless be consistent with safe and sound banking and with the BSA. As financial technology and innovation continue to develop in the area of monitoring and reporting financial crime and terrorist financing, the FDIC will need the express regulatory flexibility to grant exemptive relief when appropriate in this area.

Moreover, in 2018, the FDIC, the Board of Governors of the Federal Reserve System, the National Credit Union Administration, the Office of the Comptroller of the Currency, and FinCEN issued a statement encouraging banks to take innovative approaches to meet their BSA/Anti-Money Laundering compliance obligations.[9] The statement explained that banks[10] are encouraged to consider, evaluate, and where appropriate, responsibly implement innovative approaches in this area. Today, innovative approaches and technological developments in the areas of SAR monitoring, investigation, and filing may involve, among other things: (i) Automated form population using natural language processing, transaction data, and customer due diligence information; (ii) automated or limited investigation processes depending on the complexity and risk of a particular transaction and appropriate safeguards; and (iii) enhanced monitoring processes using more and better data, optical scanning, artificial intelligence, or machine learning capabilities. Requests for exemptive relief pertaining to innovation or other matters may involve, among other things, expanded investigations and SAR timing issues, SAR disclosures and sharing, continued SAR filings for ongoing activity, SAR outsourcing of responsibilities and practices, the role of agents of FDIC-supervised institutions, the use of shared utilities and shared data, and the use and sharing of de-identified data (commonly referred to as anonymized data). The FDIC expects that new technologies will continue to prompt additional innovative approaches related to suspicious activity monitoring and SAR filing.

If the FDIC adopts the proposed rule and uses it to grant exemptions, the exemptions would not relieve FDIC-supervised institutions from the obligation to comply with FinCEN's SAR regulation when applicable. To the extent an exemption request from an FDIC-supervised institution involves both the FDIC's SAR regulation and FinCEN's SAR regulation, the FDIC-supervised institution would need an exemption from both the FDIC and FinCEN. The FDIC expects to coordinate with FinCEN when handling parallel exemptions. As explained above, however, the FDIC's SAR regulation imposes additional requirements not included in FinCEN's SAR regulation. To the extent an exemption request is subject to a requirement imposed by the FDIC's SAR regulation alone (and not a parallel FinCEN requirement), the proposed rule would allow the FDIC to exempt a supervised institution from that requirement.

Federal Deposit Insurance Corporation.

By order of the Board of Directors.

Dated at Washington, DC, on December 15, 2020.

James P. Sheesley,

Assistant Executive Secretary.

[FR Doc. 2021-00037 Filed 1-21-21; 8:45 am]

BILLING CODE 6714-01-P

The document is published in the Federal Register: https://www.federalregister.gov/documents/2021/01/22/2021-00037/exemptions-to-suspicious-activity-report-requirements

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