New York State Proposes Anti-Terrorism and Anti-Money Laundering Regulation

Strategic Insights -

The New York State Department of Financial Services (NYDFS) has proposed a new regulation aimed at preventing international terrorism by stopping the flow of illicit funds through financial institutions. The regulation requires senior financial executives to certify that their institutions have sufficient systems in place to detect and prevent illicit transactions. This move comes after four years of investigations by NYDFS into terrorist financing, sanctions violations, and anti-money laundering compliance at financial institutions, which uncovered serious shortcomings in transaction monitoring and filtering programs.

Key Takeaways:

  • The proposed regulation includes two key requirements: a Transaction Monitoring Program and a Watch List Filtering Program, both of which must be implemented by financial institutions to detect and prevent illicit transactions.
  • The Transaction Monitoring Program requires financial institutions to maintain a system that can monitor transactions after their execution for potential BSA/AML violations and suspicious activity reporting.
  • The Watch List Filtering Program requires financial institutions to maintain a system that can interdict transactions prohibited by applicable sanctions, including OFAC and other sanctions lists, politically exposed persons lists, and internal watch lists.
  • The regulation requires financial institutions to maintain easily understandable documentation for both programs, including investigative protocols and guidelines for investigating alerts generated by the programs.
  • Financial institutions will be subject to on-going analysis to assess the continued relevancy of the detection scenarios, underlying rules, threshold values, parameters, and assumptions.
  • The regulation requires financial institutions to submit annual certifications duly executed by their chief compliance officer or functional equivalent by April 15 of each year.
  • The proposed regulation is subject to a 45-day notice and comment period before final issuance.

Statistics:

  • Over the last four years, NYDFS has conducted a series of investigations into terrorist financing, sanctions violations, and anti-money laundering compliance at financial institutions, uncovering serious shortcomings in transaction monitoring and filtering programs.
  • The regulation requires financial institutions to maintain a Transaction Monitoring Program that includes attributes such as being based on risk assessment, reflecting BSA/AML laws and regulations, and utilizing BSA/AML detection scenarios.
  • The Watch List Filtering Program requires financial institutions to maintain a system that can interdict transactions prohibited by applicable sanctions, including OFAC and other sanctions lists, politically exposed persons lists, and internal watch lists.
  • The regulation requires financial institutions to conduct end-to-end, pre- and post-implementation testing of both the Transaction Monitoring and Watch List Filtering Programs.

Sources:

  • New York State Department of Financial Services (NYDFS)
  • Governor Andrew Cuomo's news release (December 1)
  • Proposed Transaction Monitoring and Filtering Program regulation (NYDFS)

http://www.dfs.ny.gov/legal/regulations/proposed/rp504t.pdf

  • Upcoming edition of the New York State Register