President Trump today signed an executive order directing regulators to provide guidance to financial institutions on identifying suspicious activity allegedly tied to individuals in the country illegally, and to potentially strengthen customer due diligence requirements. He also signed a separate order directing the Federal Reserve to explore expanding its payment accounts and payment services to nonbank financial institutions.
Banks and illicit activity
The first executive order is meant to “protect America’s financial system from illicit activity, strengthen customer identification requirements for financial institutions, and address the credit risks posed by extending financial services to non-work authorized illegal aliens,” according to a White House fact sheet.
Under the order:
- The Treasury secretary must issue a formal advisory to financial institutions identifying red flags and suspicious activity patterns tied to illegal immigration and bad actors.
- Regulators must propose changes to Bank Secrecy Act regulations to strengthen customer due diligence requirements and the authority to obtain additional information when warranted. It also calls on regulators to consider changes to customer identification program requirements, “including accounting for the risks that foreign consular identification cards pose to the U.S. financial system.”
- The Consumer Financial Protection Bureau must consider modifying regulations to clarify that potential deportation and loss of wages are factors that could affect a borrower’s ability to repay a loan under “ability-to-repay” standards.
- Regulators are to issue guidance on managing the credit risks of extending loans and financial services to immigrants without work authorization.
Nonbanks
The executive order on nonbanks seeks to streamline regulations and promote collaboration among all parties in the financial system, according to a White House fact sheet. It asks the Federal Reserve to evaluate the regulatory and policy frameworks governing access to Reserve Bank payment accounts and payment services by uninsured depository institutions and nonbanks, and to report on what it can do to extend that access to those institutions.
The order also directs regulators to review existing guidance and regulations to identify what can be done “to facilitate innovation and greater competition in the provision of financial services, while maintaining safety and soundness.”
ABA response
In a statement, American Bankers Association President and CEO Rob Nichols said ABA has long believed that any player in the financial services marketplace looking to offer bank-like services should be required to meet the same rigorous regulatory and consumer protection requirements.
“Unless everyone is held to the same high standards, the financial system and consumers will be at risk,” he said. “In light of today’s White House executive order on financial innovation, we urge the banking regulators to conduct their requested review in a way that allows for innovation but doesn’t compromise the safe and sound financial system we have today.”
As for the executive order on preventing illicit financial activity, Nichols said ABA is reviewing the document.
“We share the administration’s goal of ensuring a safe, sound and secure financial system, and America’s banks work diligently every day to prevent bad actors from gaining access,” he said. “We will continue to work with the administration, law enforcement and other stakeholders to ensure today’s actions bolster our financial defenses while maintaining consumer access to banking services.”
