FinCEN proposes new anti-money laundering rule for financial institutions

The Financial Crimes Enforcement Network (FinCEN) has issued a proposed rule to reform how financial institutions build anti-money laundering (AML) and countering the financing of terrorism (CFT) programs under the Bank Secrecy Act.

FinCEN said proposed changes aim to reduce the compliance burden by “promoting risk-based and reasonably designed programs” — and create greater consistency in how banks are evaluated for effectiveness.

“For too long, Washington has asked financial institutions to measure success by the volume of paperwork rather than their ability to stop illicit finance threats,” said Secretary of the Treasury Scott Bessent. “Our proposal restores common sense with a focus on keeping bad actors out of the financial system, not burying America’s banks in more red tape.”

The proposed rule would refocus compliance obligations on perceived effectiveness by distinguishing between program design failures and implementation deficiencies, officials said.

“It reinforces Treasury’s belief that financial institutions are best positioned to identify and evaluate their own illicit finance risks,” FinCEN stated.

Expectations for independent testing and audit functions would be clarified — which FinCEN said will “[ensure that] examiners do not substitute their subjective judgment in place of financial institutions’ risk-based and reasonably designed AML/CFT programs.”

FinCEN would also play a more central role in AML/CFT supervision, including through a new notice and consultation framework with federal banking supervisors regarding significant supervisory actions.

The rule would revise FinCEN’s regulations to reflect changes from the Anti-Money Laundering Act of 2020 — and fully replace a prior proposed rule published July 3, 2024, which FinCEN is withdrawing.

Watchdog raises concerns

Government watchdog nonprofit Transparency International U.S. said it welcomed FinCEN’s action but found shortcomings.

“The proposal, if finalized as proposed, would also make it harder for regulators to step in when banks and other financial institutions have weak AML controls, suggesting that serious action would usually be reserved for especially large or widespread failures,” the organization stated. “It also misses a chance to more clearly focus on corruption-related money laundering, and backs away from some of the clearer risk-assessment features in the prior, 2024 version of the rule.

“[That includes] more explicit attention to intermediaries and other professional ‘enablers’ of money laundering and corruption, which are often key warning signs in bribery, kleptocracy, sanctions evasion and other complex dirty money schemes.”

Public comment will be accepted for 60 days after the proposal is published in the Federal Register in the coming days.

Judge strikes down title insurance rule

In a separate action, a federal judge in Texas in March vacated FinCEN’s AML rule that required title insurance companies to report details of millions of residential real estate transactions.

U.S. District Judge Jeremy Kernodle of the Eastern District of Texas ruled that FinCEN exceeded its statutory authority. The rule — which took effect March 1 — mandated reporting for any non-financed residential real estate transfer where ownership was held by an entity or trust, with no geographic or price threshold.

Kernodle noted that by FinCEN’s own estimates the rule would have covered between 800,000 and 850,000 transfers annually at a compliance cost of up to $690 million.

He rejected FinCEN’s argument that existing law independently authorized the rule and allowed the agency to require financial institutions to “maintain appropriate procedures, including the collection and reporting of certain information.”

The decision vacated the rule entirely, restoring the status quo that existed before the regulation took effect.

Jonathan Delozier reported and wrote this article with drafting assistance from HousingWire Automation, an editorial tool that helps transform announcements and industry data into HousingWire-style news coverage.