Limit Credit Unions' AML Regulatory Burden: World Council
World Council of Credit Unions once again encouraged the Financial Action Task Force to limit regulatory burdens on credit unions. Specifically, World Council weighed in on regulatory burdens the FATF could relieve when it makes planned revisions to its guidance on the risk-based approach to anti-money laundering and countering the financing of terrorism compliance.
Representatives from the global credit union trade group based in Madison, Wis., met with FATF members this week in follow-up to a letter submitted to FATF in January addressing the same issues.
Other topics discussed at the FATF private sector participation group meeting at the European Banking Federation’s Brussels’ headquarters on March 25-26 included AML/CFT issues related to money services businesses and virtual currencies such as bitcoin.
The FATF is updating its current RBA for depository institutions guidance paper, issued in 2007, to be consistent with its updated International Standards on Combatting Money Laundering and the Financing of Terrorism and Proliferation, better known as the "40 Recommendations," released in February 2012.
Comments by Michael Edwards, World Council’s vice president and chief council, verbally supported those made in his January correspondence to the group.
World Council supports limiting regulatory burdens on small and medium financial institutions and helping credit unions maintain access to correspondent banking services. Credit unions in the U.S. and Great Britain, for example, have found it increasingly difficult to maintain access to these services since the FATF’s 2012 revisions to the 40 Recommendations due to increased responsibility placed on banks and credit unions for ensuring proper due diligence on their customer’s customers.
Under the new rules, a bank or central credit union providing correspondent services to a credit union now can be held liable for shortcomings in the credit union’s customer due diligence/member identification program. Similarly, a credit union doing business with a money service business like those that exchange bitcoin can be held liable for problems with the business’s AML/CFT compliance.
Many larger banks have “de-risked” their operations by curtailing business relationships with credit unions and other businesses that handle funds on behalf of consumers or businesses, World Council said.
Despite existing guidance from FATF and the U.S. Financial Crimes Enforcement Network, many jurisdictions, including most U.S. states, have not yet clarified how their AML/CFT and other regulatory requirements apply to virtual currency exchanges and administrators.
“The U.S. Treasury Department and FinCEN helped write the FATF’s standards, meaning that FATF guidance gives us a preview of upcoming Bank Secrecy Act guidance that will apply to U.S. credit unions, sometimes even before the FATF paper is finalized,” Edwards said.
Bitcoin exchanges in particular have expressed interest in doing business with credit unions to gain access to wire and automated clearinghouse systems to settle sales of bitcoins with traditional currency. The lack of regulatory certainty regarding AML/CFT compliance and licensure for virtual currency operators has made this difficult.
“FinCEN and NCUA already expect credit unions to apply a risk-based approach to BSA compliance, however the upcoming revisions to the risk-based approach are likely to make the approach even more risk-based,” Edwards said. “This should allow many credit unions to streamline their BSA compliance programs to focus their compliance resources more on the money laundering or terrorist financing risks presented by particular members, rather than follow a check-the-box approach.”
In addition AML/CFT issues, the problems that credit unions and others experienced maintaining access to correspondent banking services were discussed extensively, Edwards said.
“I would be surprised if FATF and FinCEN do not issue guidance on this subject as well,” he added.