A financial institution’s requirement to report potential suspicious activity to law enforcement has evolved over the years. Prior to 1996, FDIC regulated financial institutions were required to report suspicious activity through criminal referral forms, which was the method of informing potential violations to law enforcement. However, in 1992 Congress passed the Annunzio-Wylie Anti-Money Laundering Act, which made the reporting of certain suspicious transactions a requirement under BSA. As a result, the Department of Treasury, the FDIC and the other federal banking agencies along with law enforcement created the modern SAR form and reporting process. This standardized the method of reporting suspicious activity. Following the creation of the SAR form in 1996, FinCEN implemented its SAR regulation; therefore, the FDIC and other banking agencies amended their criminal referral form to incorporate the SAR form. As a result, financial institutions are required under both FinCEN’s regulation and FDIC’s regulation to file a SAR. Although the regulations are similar, they are not exactly the same.
What is the difference?
FinCEN has authority to exempt certain BSA requirements under its SAR reporting regulation. These exemptions may be conditional or unconditional, may apply to particular persons or to classes of persons, and may apply to transactions or classes of transactions. Overall, FinCEN’s authority to permit a SAR exemption is broad. However, the exemption to SAR reporting under the FDIC’s regulation is much more specific, which includes physical crime such as robberies and lost, missing, stolen or counterfeit securities. To better align the difference in regulation and broaden the FDIC’s ability to permit an exemption of SAR reporting, the latest proposal would add three new paragraphs to section 353.3(d).
First, the proposal would permit the FDIC to exempt any FDIC supervised financial institution from SAR reporting requirements under FDIC’s regulation. Upon written request, the FDIC would be required to seek FinCEN’s concurrence of the exemption request along with an exemption from FinCEN’s SAR regulation. Furthermore, the addition of paragraph (3) to section 353.3(d) would permit the FDIC to consult with FinCEN and other state and federal banking agencies regarding the exemption request and before granting any exemption.
Secondly, the proposal would require the FDIC to provide a written response to the financial institution submitting the request for exemption. The written response by the FDIC is required following the concurrence or consulting with FinCEN or any other state or federal banking agency. If a financial institution is granted the exemption, they may rely on the exemption for a period of time communicated by the FDIC, which may be indefinite.
The third paragraph proposed to be added to section 353.3(d) would permit the FDIC to revoke or extend the time period in which the exemption is granted. However, the FDIC would be required to provide written notice to the financial institution including the intention to revoke the exemption and the basis for the revocation of the exemption. In addition, the FDIC is required to allow the financial institution an opportunity to respond prior to deciding to revoke the exemption. The proposal also includes the requirement for the FDIC to notify the exempt financial institution, in writing, the final decision to revoke an exemption.
Overall, the purpose of the recent proposal is to better align FDIC regulated financial institutions the ability to allow the FDIC to issue exemptions from the SAR reporting requirements. In addition, the intent of the proposal is to permit the FDIC to grant SAR exemptions to promote financial institutions to utilize innovated solutions, reduce regulatory burden, and meet BSA requirements more effectively. For questions about SAR reporting requirements, don’t hesitate to ask our Advisors through our Compliance Advisory Service.