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Are you prepared ? New York State Issues New BSA/AML/OFAC Transaction Monitoring and Filtering Program Regulation

Recently released guidelines require institutions to adopt risk-based programs to monitor and filter transactions for potentially suspicious activity. Beginning January 1, 2017, financial institutions registered under the New York banking law are responsible for complying with anti-terrorism transaction monitoring and filtering program regulations, established by the New York Department of Financial Services (NYDFS).

Last month, the NYDFS published its Final Rule (Part 504) regarding strengthening anti-money laundering (AML) programs. More specifically, NYDFS requires regulated financial institutions to maintain a transaction monitoring program which identifies and reports suspicious transactions and a filtering program aimed at blocking transactions prohibited by federal economic and trade sanctions administered by the Office of Foreign Assets Control (OFAC). Although this rule becomes effective on January 1, 2017 (with initial annual certifications to be filed by April 15, 2018), financial institutions should take prompt action to ensure that their organization is compliant with the new rules.

What Happened?

In December 2015, Governor Andrew M. Cuomo announced that his administration was proposing a new  anti-terrorist financing and anti-money laundering regulation that included — among other important provisions — a requirement modeled on the Sarbanes-Oxley Act that senior financial executives certify that their institutions have sufficient systems in place to detect illicit transactions. The administration then solicited business community members for comments regarding these proposals, the comment period expired on March 31, 2016.  On June 30, 2016, New York Superintendent of Financial Services Maria T. Vullo announced that the NYDFS adopted a risk-based AML regulation that requires regulated institutions to maintain programs to detect potentially suspicious transactions and prevent transactions with sanctioned entities. The risk-based rule adopted by the NYDFS took into consideration comments submitted by the financial services industry and others.

Who is affected?

The Final Rule broadly applies to two classes of institutions (collectively, Regulated Institutions): (i) Bank Regulated Institutions and (ii) Nonbank Regulated Institutions.

The Final Rule broadly applies to two classes of institutions (collectively, Regulated Institutions): (i) Bank Regulated Institutions and (ii) Nonbank Regulated Institutions. The institutions affected include institutions that are chartered or licensed under the New York banking law, including: banks, trust companies, private bankers, savings and loan associations, foreign bank branches, foreign bank agencies offices, check chasers and money transmitters.

What does this mean?

Depending on how the Final Rule is interpreted and applied, it could have a significant impact on the operating costs of Regulated Institutions, and most certainly will provide the NYDFS with increased enforcement powers. However, to a large extent, the Final Rule codifies existing practices which have long been required by examiners and many of which are already specified in the 2014 FFIEC BSA/AML Examination Manual.

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