Five US agencies call for private sector innovation to fight money laundering and terrorism financing

What has happened?
The US Treasury's Financial Crimes Enforcement Network (FinCEN) and the primary federal banking agencies have come together to encourage the private sector to innovate ways to combat money laundering, terrorist financing and other illicit financial threats.

What does this mean?
The joint statement was issued by FinCEN and the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration and the Office of the Comptroller of the Currency (OCC).

It recognises that private sector innovation, including new ways of using existing tools or adopting new technologies, can help banks and other financial institutions identify and report money laundering, terrorist financing, and other illicit financial activity by enhancing the effectiveness and efficiency of Bank Secrecy Act/anti-money laundering (BSA/AML) compliance programmes.
The statement encourages banks to "consider, evaluate, and, where appropriate, responsibly implement innovative approaches" in this area and makes clear that regulators are keen to engage with the private sector on this issue.

However, the statement also mentions that regulators will not "penalise or criticise" banks that maintain effective BSA/AML compliance programmes but do not pursue innovative approaches.
The statement notes that, while the agencies may provide feedback, innovative pilot programmes in and of themselves should not subject banks to supervisory criticism, even if the pilot programmes are unsuccessful.
Likewise, pilot programmes that expose gaps in a BSA/AML compliance programme will not necessarily result in supervisory action.

"For example, when banks test or implement artificial intelligence-based transaction monitoring systems and identify suspicious activity that would not otherwise have been identified under existing processes, the Agencies will not automatically assume that the banks’ existing processes are deficient", the statement said.
In these instances, the agencies said they will assess the adequacy of banks' existing suspicious activity monitoring processes independent of the results of the pilot programme.
Bank management should also evaluate whether innovative approaches are sufficiently developed to replace or augment existing BSA/AML processes.
In making these evaluations, other factors should be reviewed too, including information security issues, third-party risk management, and compliance with other applicable laws and regulations, such as those related to customer notifications and privacy.

Commenting on the development, Hogan Lovells Counsel Sara Lenet said:
"The joint statement does not alter or lessen the existing BSA/AML compliance requirements applicable to banks, but it encourages banks to explore innovation in methods to meet these requirements. Banks will be given leeway to try new innovative approaches with less risk of criticism from their regulators, but the joint statement does not give a bank a free pass to utilize new technology for BSA/AML compliance that is not carefully evaluated and determined to be appropriate for the bank taking into account its risk profile." 
The statement also notes that the agencies are keen to engage with banks to discuss pilot programmes for innovative BSA/AML approaches.

As banks pursue innovative change, early engagement can promote a better understanding of these approaches by the agencies, as well as provide a means to discuss expectations regarding compliance and risk management.
The agencies also welcome industry’s feedback on how they can best support innovative efforts through supervisory processes, regulations, and guidance.
Those wishing to give feedback may contact FinCEN at or the OCC at
The day after the joint statement was issued, FinCEN also announced it will launch a new innovation initiative to foster better understanding of new technologies for enhancing BSA/AML efforts. 
The effort will involve engagement with banks, technology providers and others.



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