The New York Department of Financial Services (the "NYDFS") adopted standards for filtering programs that monitor transactions for potential anti-money laundering ("AML") and Bank Secrecy Act ("BSA") violations and block transactions that are prohibited by the Treasury's Office of Foreign Assets Control (the "OFAC").
The enhanced standards will apply to: (i) banks, trust companies, private bankers, savings banks, and savings and loan associations chartered under the New York Banking Law ("NYBL"), (ii) branches and agencies of foreign banking corporations licensed under the NYBL to conduct banking operations in New York, and (iii) check cashers and money transmitters licensed pursuant to the NYBL ("Regulated Institutions").
The NYDFS specified that under the adopted standards, each Regulated Institution must maintain either a manual or automated Transaction Monitoring Program reasonably designed for the purpose of monitoring transactions after their execution for potential BSA/AML violations and Suspicious Activity Reporting. In addition, the final regulations require each Regulated Institution to maintain a Filtering Program reasonably designed for the purpose of interdicting transactions that are prohibited by the OFAC.
The standards also require Regulated Institutions to document the identification and specific remedial efforts to address areas, systems or processes that require material improvement, updating or redesign. Moreover, the final regulations mandate that each Regulated Institution adopt and submit to the Superintendent a Board Resolution or Senior Officer(s)' Compliance Finding in the form set forth in Attachment A of the regulations by April 15th of each year. Each Regulated Institution shall maintain for examination by the NYSDFS all records, schedules and data supporting the adoption of the Board Resolution or the Senior Officer(s)' Compliance Finding for a period of five years.
The adopted regulations will become effective on January 1, 2017. The NYSDFS noted that regulators will be required to prepare and submit Annual Board Resolutions or Senior Officer(s)' Compliance Findings to the Superintendent starting April 15, 2018.
Commentary
As originally proposed, this was one of the most over-reaching set of regulations ever put forward by a "mainstream" regulator. It imposed requirements that would have been impossible to fulfill and demanded certifications that would have been impossible to give. As redrafted, the rules do not contain terms that are entirely impossible to fulfill. They even use the word "reasonable." Nonetheless, it is unclear why these rules are necessary. Banking institutions in New York are already subject to the rules of the federal government. According to the NYDFS press release, "It is time to close the compliance gaps in our financial regulatory framework to shut down money laundering operations and eliminate potential channels that can be exploited by global terrorist networks and other criminal enterprises." What is the gap in the law that the NYDFS asserts that it is addressing with these resolutions? No gap is identified; and if there were such a gap, it should be addressed at the federal level, not by each of the fifty states making its own rules. New York State is not better positioned than the federal government to adopt rules that will shut down the global terrorist networks.
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