Industry Generally Supports FinCEN Proposal for No-Action Letters

The Treasury Department’s Financial Crimes Enforcement Network should establish a no-action letter process, industry groups said, which would help provide better compliance guidance to banks and lead to better reporting. No-action letters, which are used by other enforcement agencies to indicate their intention not to take enforcement action against a party submitting a disclosure, could significantly improve industry’s understanding of FinCEN regulations and reduce compliance risks, the groups said.

FinCEN in June requested comments on creating a no-action letter process (see 2206030017), which is used by the Office of Foreign Assets Control and other agencies in cases where they decide a potential sanctions violation doesn’t warrant a penalty. No-action letters from FinCEN, which oversees financial institutions' compliance with certain sanctions (see 2204150023) and anti-money laundering regulations, “can help achieve clarity, improve understanding, and provide certainty where it has not existed in the past,” the Money Services Business Association told FinCEN in comments released this month.

The MSBA said its members have been “especially impacted” by derisking, a process in which financial institutions end certain banking relationships due to “perceived compliance risks.” In certain cases, the association said, no-action letters could “help reduce the threat of derisking” by showing their customers that they won't be subject to a penalty. “There are many times when business plans and commercial relationships are delayed or derailed because of … compliance uncertainties,” MSBA said. “Our members would welcome the opportunity to seek a no-action letter solely from FinCEN, especially if the response could be provided in a timely manner.”

The Credit Union National Association said no-action letters can better provide “important guidance and consistency with regard to examinations and oversight expectations.” The association specifically said credit unions could “more effectively” implement compliance programs if they better understand FinCEN’s compliance expectations. “Greater transparency and communication between the regulatory agencies, law enforcement, and the industry will ensure all stakeholders have consistent goals and improve the value of the information collected and reported,” CUNA said.

But CUNA also said FinCEN, if it decides to create a no-action letter process, should publicly clarify the “circumstances under which it would release a no-action letter” and the time frames for when it would issue them. The no-action letter determination process should take no longer than 90 days, the association said. If it takes longer than 90 days, FinCEN should provide the financial institution with a “reliable” time frame under which it should expect to hear back. This “would allow credit unions to make business decisions regarding the investment of staff time or credit union funds in innovative products or new policy adoption and training,” CUNA said.

The Securities Industry and Financial Markets Association said the letters would promote a “productive dialogue” between industry and FinCEN and better focus firms’ resources and reduce burdens to “mitigate illicit finance risk.” It also stressed that a FinCEN no-action letter should “carry weight” with other regulators that may be considering enforcement action. FinCEN is “in the best position to determine if the activity outlined in the no-action request advances efforts to detect and prevent money laundering, terrorism financing, and illicit financial activity,” SIFMA said.

Although the majority of commenters supported a no-action letter process, the Ohio Credit Union League pointed out some potential flaws in the proposal. OCUL said the process “serves to regulate conduct that has yet to be determined a violation” and is “unnecessary” to achieve FinCEN’s goals. FinCEN could cause harm to financial institutions by “publicly asserting” that it’s “considering conduct that will be deemed a violation and subsequently taking no action,” the group said. It also called the “public nature” of the no-action letter process “concerning,” saying it could “erode the trust between consumers and their financial services provider.”

“The public nature of the proposed No-Action Letter process could vilify a financial institution that has yet to break a financial regulation,” OCUL said. “This type of public nonenforcement could result in increasing financial services mistrust rather than protecting consumers from any illicit financial risks.”