ABA Questions FinCEN Analysis of Due Diligence Rule

The Financial Crimes Enforcement Network’s evaluations of the regulatory impact of its proposal to enhance customer due diligence requirements fail to consider the true costs and effects — and overstate the benefits — the rule would impose on banks of all sizes, ABA said in a members-only staff analysis issued today.

For example, ABA said, FinCEN’s analysis of the cost of technology upgrades does not consider the time and expense for a bank of testing, adjusting and implementing third-party software after it is delivered. It also dismisses the cost of changing internal controls.

Cost estimates for the regulatory impact analysis were based on phone conversations with an unspecified number of and unstated types of financial institutions, calling into question whether the analysis has a sufficiently broad base. For the initial regulatory flexibility analysis of the impact on small entities — conducted only after ABA and other groups urged FinCEN to do so — FinCEN said it consulted with only three small financial institutions.

FinCEN’s proposal would make customer due diligence requirements under the Bank Secrecy Act explicit and add a requirement for banks to identify the beneficial owners of customers incorporated as a legal entity. Under the proposal, banks must identify the natural person or persons that own or control a legal entity that is a customer, obtaining this information from the customer on a form when an account is opened. Comments on the FinCEN documents are due Jan. 25. For more information, contact ABA’s Rob Rowe.