Regulatory trends keeping U.S compliance teams up at night

AML efforts in the US have been a key governmental priority throughout the implementation of AMLA 2020 and the CTA. Earlier this year, FinCEN and other regulatory bodies highlighted several key priorities to help guide market participants to focus their AML programs on the potentially biggest threats to the U.S. financial system and national security. The US regulatory landscape has seen some drastic changes to its AML and KYC policies in recent times.

So, what have the latest updates been, and what movements have been made towards regulating currently unregulated entities?

UBO updates

The National Defence Authorization Act for the Fiscal Year 2021 (NDAA) will require entities to file their UBO reports with FinCEN. However, the regularity of these reports has yet to be announced.

The consensus currently is that these filings will have to be performed annually for existing entities and for new entities it will be at the time of incorporation.

What this means for financial service market participants is that they will have to determine over which period their existing entities fall, and to determine this, a review of structure will need to be conducted.

Many businesses will require a contingent workforce to develop and implement a review process which will involve looking at updating UBO information and ensuring regulatory landscapes are abided by, as well as ensuring that internal UBO regulations are considered.

With a change in international landscapes, UBO definitions vary in different geographies, creating more complexities for global compliance synergy, and once solid UBO regulations are determined in the US, this could lead to further complications (this law is a recent development, and more improvements are expected to be implemented). Compliance teams will inevitably need skilled individuals, at scale, who have a good understanding of global regulatory UBO developments.


Potential removal of updated fair lending regulations

The recently updated fair lending rules have been reviewed by the Office of the Comptroller of the Currency, recommending that the OCC should go back to the previous 1995 regulations for the Community Reinvestment Act. This means that banks could expect a change by the start of 2022 in the manner that they are scored by regulators on how well they are supporting lower-income communities.

This change was led by the concern that positive ratings offered by the CRA were easier to obtain, as banks were given too much clarity and flexibility when understanding how to achieve a higher score.

The economic toll of the pandemic showcased the need for update requirements from the CRA in a way that ensures banks are doing as much as they can to meaningfully support lower-income communities. Moving forwards, they will need to prepare for more stringent checks and placing a real emphasis on updating their lending score criteria.

Crypto and regulation

An industry that has been built to essentially withstand regulation is now staring it in the face as the global regulatory landscape for cryptocurrencies continues to evolve. U.S-based crypto companies will moving forwards fall under the regulatory scope of the Bank Secrecy Act (BSA).

Although, confusion still lies with Bitcoin as it exists in a deregulated environment and does not require Social Security Numbers (SSNs) or other personal information like other standard bank accounts in the U.S.

This lack of collection of such personal details is one of the major drivers behind these tightening regulations, and it is recognised widely that the potential for fraud and theft within the sector is rife at present.

According to the latest World Economic Forum Report on Global Future Council on Cryptocurrencies, the pseudonymous and borderless nature of cryptocurrency systems (and the fact that virtually anyone can create a new cryptocurrency and send it to other addresses) raises potential financial integrity risks. Many fear that specifically in the US, many crypto-based companies do not have adequate compliance functions and would be under severe scrutiny by the regulators were they to be investigated.

Crypto entities are frustrated by regulatory rumors and feel they are in a liminal space as certain regulations have not been formalised. Ultimately though, it is within the crypto world’s best interests to start embracing compliance functions and set up in-house teams that can support adequate AML and KYC efforts.

Contingent resource is indeed already being used by many crypto businesses to help set up these teams at speed, in preparation for expected regulations to be announced at the end of this year.

Arts and regulation

Crypto is not the only sector bracing itself for regulatory adoption.

The U.S. government recently enacted new laws and published regulatory guidelines that will have major implications for arts and antiquities market participants.

Under the new laws, which are similar to the ones implemented in the UK and European markets, will begin implementation in December 2021. The major issue of concern here is that this industry is seen as one that is ripe for potential money laundering acts to be committed.

According to ARTnews, in 2019, the U.S. was the world’s largest art market, representing about $28.3 billion, or about 44%, of global art sales. Last year, the industry witnessed the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) issue an advisory on the sanctions risks from high-value artwork dealings. What is expected now, is more regulation which means for the first time for many, the implementation of a compliance function within their business will be law.

Those who will be impacted by the new laws, which are likely to come into fruition in December 2021, will need to set up KYC and AML processes into their transactions moving forward. This is not to mention the EDD that may come with periodic review cycles.

Legacy IT systems are often not agile enough to respond to changes required either by a shift in regulation or to support specific remedial projects and therefore need a technological solution.

Crucially though, a technology plus people solution is required to either deal with a one-off project or to form a turnkey business support function for part of a firm’s business processing – especially in a market new to regulatory change, such as arts and antiquities.

Many art dealers will not have had to equip their teams with compliance professionals until now, so they must ensure they are bringing in the right skilled talent that will enable them to develop systems and processes that are compliant.

Next steps

By the end of this year, market participants in the US can expect FinCEN to issue updated regulations related to the national priorities. In recent statements accompanying the national priorities, the U.S. regulators made explicit that the publication of the priorities does not create an immediate change in Bank Secrecy Act (BSA) requirements or supervisory expectations.

Financial institutions will not be required to incorporate the priorities into their risk-based AML programs until the regulations, which will be announced later this year, become effective.

How can we help your business plan and prepare for this changing landscape?

Momenta are a global contingent resource solutions firm that has, for over 30 years, been partnering with companies in the financial services, legal, technology, and training and development sectors to cost-effectively provide the right people, with the right skills, at exactly the right time.

Momenta can, and already do for many of our clients, provide the right resource in key areas, allowing you to focus on the strategic oversight of the project at hand, while we help to implement your vision. This flexibility allows you to ensure there is always the right balance amongst your team, delivering an effective solution that will produce the desired results. We also specialise in scaling resource requirements from the ground up during the lifetime of a project to meet all key requirements, including cost control, whilst maintaining delivery capacity and capability.

If you require assistance in the form of additional resource, contact us today to see how we can help to ensure your firm is prepared for the new U.S AML regulatory landscape.